Dubber Corporation Limited (ASX:DUB) Might Not Be As Mispriced As It Looks After Plunging 26%

Unfortunately for some shareholders, the Dubber Corporation Limited (ASX:DUB) share price has dived 26% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 73% loss during that time.

Following the heavy fall in price, Dubber's price-to-sales (or "P/S") ratio of 0.8x might make it look like a buy right now compared to the Software industry in Australia, where around half of the companies have P/S ratios above 2.6x and even P/S above 7x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Dubber

How Dubber Has Been Performing

With revenue growth that's exceedingly strong of late, Dubber has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. Those who are bullish on Dubber will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Dubber, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Dubber's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Dubber's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 148% gain to the company's top line. Pleasingly, revenue has also lifted 180% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 22% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's peculiar that Dubber's P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Dubber's P/S

Dubber's recently weak share price has pulled its P/S back below other Software companies. 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 examination of Dubber revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Dubber (2 are a bit concerning) you should be aware of.

If you're unsure about the strength of Dubber's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.