Lacklustre Performance Is Driving DMG Blockchain Solutions Inc.'s (CVE:DMGI) 28% Price Drop

DMG Blockchain Solutions Inc. (CVE:DMGI) shareholders won't be pleased to see that the share price has had a very rough month, dropping 28% and undoing the prior period's positive performance. The last month has meant the stock is now only up 9.1% during the last year.

Even after such a large drop in price, DMG Blockchain Solutions' price-to-sales (or "P/S") ratio of 2.5x might still make it look like a buy right now compared to the Software industry in Canada, where around half of the companies have P/S ratios above 3.7x and even P/S above 8x are quite common. 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 DMG Blockchain Solutions

What Does DMG Blockchain Solutions' Recent Performance Look Like?

Recent times haven't been great for DMG Blockchain Solutions as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, DMG Blockchain Solutions would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 17% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 12% as estimated by the only analyst watching the company. With the industry predicted to deliver 19% growth, the company is positioned for a weaker revenue result.

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. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that DMG Blockchain Solutions maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

Plus, you should also learn about these 4 warning signs we've spotted with DMG Blockchain Solutions.

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.