Why Investors Shouldn't Be Surprised By DATA Communications Management Corp.'s (TSE:DCM) 32% Share Price Plunge

The DATA Communications Management Corp. (TSE:DCM) share price has fared very poorly over the last month, falling by a substantial 32%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 23% in that time.

Since its price has dipped substantially, given about half the companies operating in Canada's Commercial Services industry have price-to-sales ratios (or "P/S") above 1.1x, you may consider DATA Communications Management as an attractive investment with its 0.2x 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 DATA Communications Management

How Has DATA Communications Management Performed Recently?

DATA Communications Management certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For DATA Communications Management?

DATA Communications Management's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 26% last year. Pleasingly, revenue has also lifted 110% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 3.6% each year during the coming three years according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 7.1% per year, which is noticeably more attractive.

In light of this, it's understandable that DATA Communications Management's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On DATA Communications Management's P/S

DATA Communications Management's recently weak share price has pulled its P/S back below other Commercial Services companies. 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.

As expected, our analysis of DATA Communications Management's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Having said that, be aware DATA Communications Management is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on DATA Communications Management, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.