Youdao, Inc. (NYSE:DAO) Doing What It Can To Lift Shares
When you see that almost half of the companies in the Consumer Services industry in the United States have price-to-sales ratios (or "P/S") above 1.5x, Youdao, Inc. (NYSE:DAO) looks to be giving off some buy signals with its 0.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
View our latest analysis for Youdao
What Does Youdao's Recent Performance Look Like?
With revenue growth that's superior to most other companies of late, Youdao has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Youdao will help you uncover what's on the horizon.
Do Revenue Forecasts Match The Low P/S Ratio?
The only time you'd be truly comfortable seeing a P/S as low as Youdao's is when the company's growth is on track to lag the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 16%. The strong recent performance means it was also able to grow revenue by 117% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 16% during the coming year according to the seven analysts following the company. With the industry only predicted to deliver 13%, the company is positioned for a stronger revenue result.
In light of this, it's peculiar that Youdao's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
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.
A look at Youdao's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Youdao, and understanding should be part of your investment process.
If you're unsure about the strength of Youdao's 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.
