Slammed 28% Dong Yi Ri Sheng Home Decoration Group Co.,Ltd. (SZSE:002713) Screens Well Here But There Might Be A Catch

The Dong Yi Ri Sheng Home Decoration Group Co.,Ltd. (SZSE:002713) share price has fared very poorly over the last month, falling by a substantial 28%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 44% in that time.

After such a large drop in price, Dong Yi Ri Sheng Home Decoration GroupLtd may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.6x, considering 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 aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View 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?

Dong Yi Ri Sheng Home Decoration GroupLtd hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Dong Yi Ri Sheng Home Decoration GroupLtd will help you uncover what's on the horizon.

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

Dong Yi Ri Sheng Home Decoration GroupLtd's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 13%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 46% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 24% growth forecast for the broader industry.

With this information, we find it odd that Dong Yi Ri Sheng Home Decoration GroupLtd is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Shares in Dong Yi Ri Sheng Home Decoration GroupLtd have plummeted and its P/S has followed suit. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Dong Yi Ri Sheng Home Decoration GroupLtd's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Dong Yi Ri Sheng Home Decoration GroupLtd with six simple checks on some of these key factors.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.