Diamond Estates Wines & Spirits Inc.'s (CVE:DWS) 27% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

Diamond Estates Wines & Spirits Inc. (CVE:DWS) shares have had a horrible month, losing 27% after a relatively good period beforehand. Longer-term shareholders would now have taken a real hit with the stock declining 8.0% in the last year.

Even after such a large drop in price, there still wouldn't be many who think Diamond Estates Wines & Spirits' price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Canada's Beverage industry is similar at about 1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Diamond Estates Wines & Spirits

What Does Diamond Estates Wines & Spirits' P/S Mean For Shareholders?

For example, consider that Diamond Estates Wines & Spirits' financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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 Diamond Estates Wines & Spirits' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Diamond Estates Wines & Spirits?

The only time you'd be comfortable seeing a P/S like Diamond Estates Wines & Spirits' is when the company's growth is tracking the industry closely.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 17%. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 3.7% shows it's an unpleasant look.

With this in mind, we find it worrying that Diamond Estates Wines & Spirits' P/S exceeds that of its industry peers. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does Diamond Estates Wines & Spirits' P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for Diamond Estates Wines & Spirits looks to be in line with the rest of the Beverage industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look at Diamond Estates Wines & Spirits revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Diamond Estates Wines & Spirits (at least 1 which is potentially serious), and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on Diamond Estates Wines & Spirits, 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.