Market Cool On D-BOX Technologies Inc.'s (TSE:DBO) Revenues
There wouldn't be many who think D-BOX Technologies Inc.'s (TSE:DBO) price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S for the Consumer Durables industry in Canada is similar at about 0.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Check out our latest analysis for D-BOX Technologies
How D-BOX Technologies Has Been Performing
With revenue growth that's exceedingly strong of late, D-BOX Technologies has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. 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 not quite in favour.
Although there are no analyst estimates available for D-BOX Technologies, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
What Are Revenue Growth Metrics Telling Us About The P/S?
In order to justify its P/S ratio, D-BOX Technologies would need to produce growth that's similar to the industry.
Retrospectively, the last year delivered an exceptional 78% gain to the company's top line. The latest three year period has also seen a 11% overall rise in revenue, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Comparing that to the industry, which is predicted to shrink 11% in the next 12 months, the company's positive momentum based on recent medium-term revenue results is a bright spot for the moment.
With this information, we find it odd that D-BOX Technologies is trading at a fairly similar P/S to the industry. It looks like most investors are not convinced the company can maintain its recent positive growth rate in the face of a shrinking broader industry.
The Bottom Line On D-BOX Technologies' 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.
As mentioned previously, D-BOX Technologies currently trades on a P/S on par with the wider industry, but this is lower than expected considering its recent three-year revenue growth is beating forecasts for a struggling industry. There could be some unobserved threats to revenue preventing the P/S ratio from outpacing the industry much like its revenue performance. Perhaps there is some hesitation about the company's ability to stay its recent course and swim against the current of the broader industry turmoil. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.
We don't want to rain on the parade too much, but we did also find 2 warning signs for D-BOX Technologies (1 is concerning!) that you need to be mindful of.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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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