Stock Analysis

Potential Upside For D-BOX Technologies Inc. (TSE:DBO) Not Without Risk

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It's not a stretch to say that D-BOX Technologies Inc.'s (TSE:DBO) price-to-sales (or "P/S") ratio of 0.8x right now seems quite "middle-of-the-road" for companies in the Consumer Durables industry in Canada, where the median P/S ratio is around 0.5x. 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 D-BOX Technologies

TSX:DBO Price to Sales Ratio vs Industry April 17th 2023

How Has D-BOX Technologies Performed Recently?

With revenue growth that's exceedingly strong of late, D-BOX Technologies has been doing very well. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. Those who are bullish on D-BOX Technologies 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 D-BOX Technologies, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is D-BOX Technologies' Revenue Growth Trending?

In order to justify its P/S ratio, D-BOX Technologies would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 78%. Revenue has also lifted 11% 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.

Weighing the recent medium-term upward revenue trajectory against the broader industry's one-year forecast for contraction of 11% shows it's a great look while it lasts.

With this in mind, we find it intriguing that D-BOX Technologies' P/S matches its industry peers. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On D-BOX Technologies' P/S

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.

Our examination of D-BOX Technologies revealed its growing revenue over the medium-term hasn't helped elevate its P/S above that of the industry, which is surprising given the industry is set to shrink. When we see a history of positive growth in a struggling industry, but only an average P/S, we assume potential risks are what might be placing pressure on the P/S ratio. Without the guidance of analysts, perhaps shareholders are feeling uncertain over whether the revenue performance can continue amidst a declining industry outlook. It appears some are indeed anticipating revenue instability, because this relative performance should normally provide a boost to the share price.

Before you take the next step, you should know about the 2 warning signs for D-BOX Technologies (1 shouldn't be ignored!) that we have uncovered.

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.

Valuation is complex, but we're helping make it simple.

Find out whether D-BOX Technologies is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.