Benign Growth For Dong Yi Ri Sheng Home Decoration Group Co.,Ltd. (SZSE:002713) Underpins Stock's 26% Plummet

Unfortunately for some shareholders, the Dong Yi Ri Sheng Home Decoration Group Co.,Ltd. (SZSE:002713) share price has dived 26% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 66% share price decline.

Since its price has dipped substantially, Dong Yi Ri Sheng Home Decoration GroupLtd may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.4x, since almost half of all companies in the Consumer Services industry in China have P/S ratios greater than 3.5x and even P/S higher than 9x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Dong Yi Ri Sheng Home Decoration GroupLtd

What Does Dong Yi Ri Sheng Home Decoration GroupLtd's P/S Mean For Shareholders?

The recent revenue growth at Dong Yi Ri Sheng Home Decoration GroupLtd would have to be considered satisfactory if not spectacular. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Dong Yi Ri Sheng Home Decoration GroupLtd will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as Dong Yi Ri Sheng Home Decoration GroupLtd's is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.3% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 25% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 36% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's understandable that Dong Yi Ri Sheng Home Decoration GroupLtd's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Final Word

Having almost fallen off a cliff, Dong Yi Ri Sheng Home Decoration GroupLtd's share price has pulled its P/S way down as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of Dong Yi Ri Sheng Home Decoration GroupLtd confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Dong Yi Ri Sheng Home Decoration GroupLtd (1 is a bit concerning!) that you should be aware of.

If you're unsure about the strength of Dong Yi Ri Sheng Home Decoration GroupLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.