Kencana Agri Limited (SGX:BNE) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month.    To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.  

Following the heavy fall in price, given about half the companies operating in Singapore's Food industry have price-to-sales ratios (or "P/S") above 0.7x, you may consider Kencana Agri as an attractive investment with its 0.1x P/S ratio.   However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.  

SGX:BNE Price to Sales Ratio vs Industry March 14th 2024

What Does Kencana Agri's Recent Performance Look Like?

For example, consider that Kencana Agri's financial performance has been poor lately as its revenue has been in decline.   Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer.  If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.    

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Kencana Agri's earnings, revenue and cash flow.  

What Are Revenue Growth Metrics Telling Us About The Low P/S?  

In order to justify its P/S ratio, Kencana Agri would need to produce sluggish growth that's trailing the industry.  

Retrospectively, the last year delivered a frustrating 11% decrease to the company's top line.   However, a few very strong years before that means that it was still able to grow revenue by an impressive 31% in total over the last three years.  So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.  

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 5.4% shows it's noticeably more attractive.

In light of this, it's peculiar that Kencana Agri's P/S sits below the majority of other companies.  Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.  

What We Can Learn From Kencana Agri's P/S?

Kencana Agri's P/S has taken a dip along with its share price.      While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We're very surprised to see Kencana Agri currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast.  When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio.  It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.    

Plus, you should also learn about these 2 warning signs we've spotted with Kencana Agri (including 1 which is a bit unpleasant).  

If these risks are making you reconsider your opinion on Kencana Agri, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.