Dun & Bradstreet Holdings, Inc.'s (NYSE:DNB) Business Is Yet to Catch Up With Its Share Price
When close to half the companies in the Professional Services industry in the United States have price-to-sales ratios (or "P/S") below 1.3x, you may consider Dun & Bradstreet Holdings, Inc. (NYSE:DNB) as a stock to potentially avoid with its 2.2x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for Dun & Bradstreet Holdings
What Does Dun & Bradstreet Holdings' Recent Performance Look Like?
Dun & Bradstreet Holdings could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.
Want the full picture on analyst estimates for the company? Then our free report on Dun & Bradstreet Holdings will help you uncover what's on the horizon.
What Are Revenue Growth Metrics Telling Us About The High P/S?
In order to justify its P/S ratio, Dun & Bradstreet Holdings would need to produce impressive growth in excess of the industry.
If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Although pleasingly revenue has lifted 36% in aggregate from three years ago, notwithstanding the last 12 months. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.
Turning to the outlook, the next three years should generate growth of 4.6% per year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 9.0% per year growth forecast for the broader industry.
In light of this, it's alarming that Dun & Bradstreet Holdings' P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.
What We Can Learn From Dun & Bradstreet Holdings' P/S?
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
It comes as a surprise to see Dun & Bradstreet Holdings trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
Before you settle on your opinion, we've discovered 3 warning signs for Dun & Bradstreet Holdings (1 is significant!) that you should be aware of.
If you're unsure about the strength of Dun & Bradstreet Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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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