Little Excitement Around DXN Limited's (ASX:DXN) Revenues

You may think that with a price-to-sales (or "P/S") ratio of 1x DXN Limited (ASX:DXN) is a stock worth checking out, seeing as almost half of all the IT companies in Australia have P/S ratios greater than 1.7x and even P/S higher than 5x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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See our latest analysis for DXN

What Does DXN's P/S Mean For Shareholders?

DXN certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. 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 out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on DXN.

Is There Any Revenue Growth Forecasted For DXN?

In order to justify its P/S ratio, DXN would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 53% gain to the company's top line. Revenue has also lifted 16% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 26% as estimated by the only analyst watching the company. With the industry predicted to deliver 40% growth, the company is positioned for a weaker revenue result.

With this information, we can see why DXN is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From DXN's P/S?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of DXN's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 5 warning signs for DXN (1 is concerning!) that you should be aware of before investing here.

If you're unsure about the strength of DXN'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.