Samko Timber Limited (SGX:E6R) shareholders have had their patience rewarded with a 100% share price jump in the last month.    But the last month did very little to improve the 75% share price decline over the last year.  

Although its price has surged higher, when close to half the companies operating in Singapore's Forestry industry have price-to-sales ratios (or "P/S") above 0.9x, you may still consider Samko Timber as an enticing stock to check out with its 0.2x P/S ratio.   Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.  

SGX:E6R Price to Sales Ratio vs Industry June 13th 2024

What Does Samko Timber's Recent Performance Look Like?

For instance, Samko Timber's receding revenue in recent times would have to be some food for thought.   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.    

Although there are no analyst estimates available for Samko Timber, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.  

How Is Samko Timber's Revenue Growth Trending?  

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 38%.   The last three years don't look nice either as the company has shrunk revenue by 29% in aggregate.  Therefore, it's fair to say the revenue growth recently has been undesirable for the company.  

Comparing that to the industry, which is predicted to deliver 13% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's understandable that Samko Timber's P/S would sit below the majority of other companies.  However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment.  There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.  

The Bottom Line On Samko Timber's P/S

Samko Timber's stock price has surged recently, but its but its P/S still remains modest.      Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

It's no surprise that Samko Timber maintains its low P/S off the back of its sliding revenue over the medium-term.  At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio.  Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.    

We don't want to rain on the parade too much, but we did also find 4 warning signs for Samko Timber (3 are a bit concerning!) that you need to be mindful of.  

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.