MClean Technologies Berhad (KLSE:MCLEAN) is being held back by insufficient growth even after shares surged 37%

MClean Technologies Berhad (KLSE:MCLEAN) shares have continued their recent momentum with a 37% gain in the past month alone. Looking back a little further, it’s encouraging to see that the stock is up 86% in the past year.

Despite the strong share price appreciation, MClean Technologies Berhad is currently still sending buy signals with a price-to-sales ratio (or “P/S”) of 1.1x, considering almost half of all commercial services companies. The industry in Malaysia has price-to-earnings ratios of over 1.9x and even a price-to-earnings ratio of over 4x is not uncommon. Nevertheless, we need to dig a little deeper to determine whether there is a rational basis for the lower P&L.

Check out our latest analysis for MClean Technologies Berhad

What does MClean Technologies Berhad’s recent performance look like?

For example, MClean Technologies Berhad’s declining revenues of late should give food for thought. It may be that many expect the disappointing revenue performance to continue or accelerate, which has suppressed the price-to-earnings ratio. Those bullish on MClean Technologies Berhad will hope this isn’t the case so they can buy the stock at a lower valuation.

While there are no analyst estimates available for MClean Technologies Berhad, check this out free data-rich visualization to see how the company is doing in terms of revenue, revenue and cash flow.

What do the revenue growth numbers tell us about the low P/S?

The only time you’ll really feel comfortable seeing a P/S as low as MClean Technologies Berhad’s is when the company’s growth is on track to lag the industry.

When we looked at the financials last year, we were disheartened to see that the company’s revenues were down 8.7%. The past three years don’t look good either, as the company has seen revenue decline by 15% overall. So unfortunately, we have to acknowledge that the company hasn’t done a good job of growing revenue over that time.

Comparing that to the industry, which is expected to grow 15% over the next twelve months, the company’s downward momentum based on recent revenue results is a sobering picture over the medium term.

In light of this, it’s understandable that MClean Technologies Berhad’s P/S would be below the majority of other companies. Nevertheless, there is no guarantee that the P/S has already bottomed out and that sales will turn around. Even just maintaining these prices may be difficult to achieve, as recent sales trends are already putting pressure on the shares.

What does MClean Technologies Berhad’s P/S mean for investors?

Despite the recent rise in MClean Technologies Berhad’s share price, its price/earnings ratio still lags behind most other companies. While the price-to-sales ratio shouldn’t be the determining factor in whether or not you buy a stock, it is a good barometer of revenue expectations.

It is no surprise that MClean Technologies Berhad maintains its low price-to-earnings ratio due to declining sales in the medium term. At this stage, investors believe that the potential for revenue improvement is not high enough to justify a higher price-to-earnings ratio. Unless recent conditions improve over the medium term, they will continue to be a barrier to the share price around these levels.

There are also other vital risk factors to consider, and we discovered that 3 warning signs for MClean Technologies Berhad (2 doesn’t sit well with us!) that you should be aware of before investing here.

It is important to make sure you look for a great company, not just the first idea you come across. So if growing profitability fits your idea of ​​a great business, check this out free list of interesting companies with strong recent earnings growth (and a low price-to-earnings ratio).

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.