Market Might Still Lack Some Conviction On DATA Communications Management Corp. (TSE:DCM) Even After 26% Share Price Boost

The DATA Communications Management Corp. (TSE:DCM) share price has done very well over the last month, posting an excellent gain of 26%. The annual gain comes to 123% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, given about half the companies operating in Canada's Commercial Services industry have price-to-sales ratios (or "P/S") above 1x, you may still consider DATA Communications Management as an attractive investment with its 0.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for DATA Communications Management

How DATA Communications Management Has Been Performing

DATA Communications Management 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.

Want the full picture on analyst estimates for the company? Then our free report on DATA Communications Management will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For DATA Communications Management?

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

If we review the last year of revenue growth, the company posted a terrific increase of 49%. The strong recent performance means it was also able to grow revenue by 45% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 15% per annum as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 4.7% per annum, which is noticeably less attractive.

With this information, we find it odd that DATA Communications Management is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

DATA Communications Management's stock price has surged recently, but its but its P/S still remains modest. 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.

A look at DATA Communications Management's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for DATA Communications Management that you should be aware 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.