What You Can Learn From Dada Nexus Limited's (NASDAQ:DADA) P/S
When close to half the companies in the Consumer Retailing industry in the United States have price-to-sales ratios (or "P/S") below 0.5x, you may consider Dada Nexus Limited (NASDAQ:DADA) as a stock to potentially avoid with its 1.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
See our latest analysis for Dada Nexus
How Has Dada Nexus Performed Recently?
Recent times have been advantageous for Dada Nexus as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Dada Nexus.
How Is Dada Nexus' Revenue Growth Trending?
Dada Nexus' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 37%. The strong recent performance means it was also able to grow revenue by 170% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Turning to the outlook, the next year should generate growth of 30% as estimated by the analysts watching the company. That's shaping up to be materially higher than the 4.0% growth forecast for the broader industry.
In light of this, it's understandable that Dada Nexus' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Key Takeaway
Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've established that Dada Nexus maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Consumer Retailing industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.
You should always think about risks. Case in point, we've spotted 1 warning sign for Dada Nexus you should be aware of.
If these risks are making you reconsider your opinion on Dada Nexus, explore our interactive list of high quality stocks to get an idea of what else is out there.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
