DMG Blockchain Solutions Inc. (CVE:DMGI) Looks Inexpensive After Falling 26% But Perhaps Not Attractive Enough

Unfortunately for some shareholders, the DMG Blockchain Solutions Inc. (CVE:DMGI) share price has dived 26% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 60% loss during that time.

Following the heavy fall in price, DMG Blockchain Solutions may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.3x, since almost half of all companies in the Software industry in Canada have P/S ratios greater than 2.7x and even P/S higher than 9x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for DMG Blockchain Solutions

How DMG Blockchain Solutions Has Been Performing

There hasn't been much to differentiate DMG Blockchain Solutions' and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on DMG Blockchain Solutions will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 18% gain to the company's top line. Pleasingly, revenue has also lifted 59% 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.

Turning to the outlook, the next three years should generate growth of 69% per year as estimated by the three analysts watching the company. That's shaping up to be materially lower than the 388% each year growth forecast for the broader industry.

With this information, we can see why DMG Blockchain Solutions is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

The southerly movements of DMG Blockchain Solutions' shares means its P/S is now sitting at a pretty low level. 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.

As we suspected, our examination of DMG Blockchain Solutions' analyst forecasts revealed that its inferior revenue outlook is contributing 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. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 6 warning signs for DMG Blockchain Solutions (2 are concerning) you should be aware of.

If you're unsure about the strength of DMG Blockchain Solutions' 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.