Daily Journal Corporation's (NASDAQ:DJCO) Business Is Yet to Catch Up With Its Share Price
When you see that almost half of the companies in the Media industry in the United States have price-to-sales ratios (or "P/S") below 0.9x, Daily Journal Corporation (NASDAQ:DJCO) looks to be giving off strong sell signals with its 7.2x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Daily Journal
How Daily Journal Has Been Performing
The recent revenue growth at Daily Journal would have to be considered satisfactory if not spectacular. It might be that many expect the reasonable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Daily Journal will help you shine a light on its historical performance.
How Is Daily Journal's Revenue Growth Trending?
In order to justify its P/S ratio, Daily Journal would need to produce outstanding growth that's well in excess of the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 6.5%. The solid recent performance means it was also able to grow revenue by 9.4% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.
It's interesting to note that the rest of the industry is similarly expected to grow by 1.2% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.
With this in mind, we find it intriguing that Daily Journal's P/S exceeds that of its industry peers. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as a continuation of recent revenue trends would weigh down the share price eventually.
The Bottom Line On Daily Journal's P/S
Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
Our look into Daily Journal has shown that it currently trades on a higher than expected P/S since its recent three-year growth is only in line with the wider industry forecast. When we see average revenue with industry-like growth combined with a high P/S, we suspect the share price is at risk of declining, bringing the P/S back in line with the industry too. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.
A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Daily Journal with six simple checks.
If these risks are making you reconsider your opinion on Daily Journal, 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.
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