Investors Give DMG Blockchain Solutions Inc. (CVE:DMGI) Shares A 26% Hiding

The DMG Blockchain Solutions Inc. (CVE:DMGI) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 23% share price drop.

Following the heavy fall in price, DMG Blockchain Solutions may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2x, since almost half of all companies in the Software industry in Canada have P/S ratios greater than 4.2x and even P/S higher than 11x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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View 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. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

Keen to find out how analysts think DMG Blockchain Solutions' future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like DMG Blockchain Solutions' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 77% per annum over the next three years. With the industry only predicted to deliver 17% each year, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that DMG Blockchain Solutions' P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What Does DMG Blockchain Solutions' P/S Mean For Investors?

Shares in DMG Blockchain Solutions have plummeted and its P/S has followed suit. 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.

To us, it seems DMG Blockchain Solutions currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Having said that, be aware DMG Blockchain Solutions is showing 5 warning signs in our investment analysis, and 1 of those is potentially serious.

If these risks are making you reconsider your opinion on DMG Blockchain Solutions, 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.