Improved Revenues Required Before Dong Yi Ri Sheng Home Decoration Group Co.,Ltd. (SZSE:002713) Stock's 26% Jump Looks Justified

Dong Yi Ri Sheng Home Decoration Group Co.,Ltd. (SZSE:002713) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 9.9% over the last year.

Even after such a large jump in price, Dong Yi Ri Sheng Home Decoration GroupLtd's price-to-sales (or "P/S") ratio of 1.1x might still make it look like a strong buy right now compared to the wider Consumer Services industry in China, where around half of the companies have P/S ratios above 5.2x and even P/S above 10x are quite common. 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?

As an illustration, revenue has deteriorated at Dong Yi Ri Sheng Home Decoration GroupLtd over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of 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 Dong Yi Ri Sheng Home Decoration GroupLtd's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Dong Yi Ri Sheng Home Decoration GroupLtd?

In order to justify its P/S ratio, Dong Yi Ri Sheng Home Decoration GroupLtd would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a frustrating 32% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 55% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 31% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we are not surprised that Dong Yi Ri Sheng Home Decoration GroupLtd is trading at a P/S lower than the industry. 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.

What We Can Learn From Dong Yi Ri Sheng Home Decoration GroupLtd's P/S?

Even after such a strong price move, Dong Yi Ri Sheng Home Decoration GroupLtd's P/S still trails the rest of the 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.

It's no surprise that Dong Yi Ri Sheng Home Decoration GroupLtd maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Dong Yi Ri Sheng Home Decoration GroupLtd that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.