Even With A 34% Surge, Cautious Investors Are Not Rewarding Tianyu Digital Technology (Dalian) Group Co., Ltd.'s (SZSE:002354) Performance Completely

Those holding Tianyu Digital Technology (Dalian) Group Co., Ltd. (SZSE:002354) shares would be relieved that the share price has rebounded 34% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 20% in the last twelve months.

In spite of the firm bounce in price, Tianyu Digital Technology (Dalian) Group may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 4.5x, considering almost half of all companies in the Entertainment industry in China have P/S ratios greater than 6.8x and even P/S higher than 12x aren't out of the ordinary. 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 Tianyu Digital Technology (Dalian) Group

How Has Tianyu Digital Technology (Dalian) Group Performed Recently?

While the industry has experienced revenue growth lately, Tianyu Digital Technology (Dalian) Group's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Keen to find out how analysts think Tianyu Digital Technology (Dalian) Group's future stacks up against the industry? In that case, our free report is a great place to start.

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

Tianyu Digital Technology (Dalian) Group's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.2%. Even so, admirably revenue has lifted 70% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 47% during the coming year according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 35%, which is noticeably less attractive.

In light of this, it's peculiar that Tianyu Digital Technology (Dalian) Group's 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.

The Final Word

Despite Tianyu Digital Technology (Dalian) Group's share price climbing recently, its P/S still lags most other companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

To us, it seems Tianyu Digital Technology (Dalian) Group 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. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You always need to take note of risks, for example - Tianyu Digital Technology (Dalian) Group has 1 warning sign we think you should be aware of.

If you're unsure about the strength of Tianyu Digital Technology (Dalian) Group's 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.