Dubber Corporation Limited's (ASX:DUB) Shares Leap 77% Yet They're Still Not Telling The Full Story

Dubber Corporation Limited (ASX:DUB) shares have continued their recent momentum with a 77% gain in the last month alone. But the last month did very little to improve the 66% share price decline over the last year.

Even after such a large jump in price, it's still not a stretch to say that Dubber's price-to-sales (or "P/S") ratio of 2.5x right now seems quite "middle-of-the-road" compared to the Software industry in Australia, where the median P/S ratio is around 3x. 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.

View our latest analysis for Dubber

What Does Dubber's Recent Performance Look Like?

Dubber has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Dubber's earnings, revenue and cash flow.

How Is Dubber's Revenue Growth Trending?

Dubber's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 30%. The strong recent performance means it was also able to grow revenue by 89% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 20%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that Dubber is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does Dubber's P/S Mean For Investors?

Dubber appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

To our surprise, Dubber revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Dubber (at least 3 which are a bit concerning), and understanding them should be part of your investment process.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.