Even With A 40% Surge, Cautious Investors Are Not Rewarding Tianyu Digital Technology (Dalian) Group Co., Ltd.'s (SZSE:002354) Performance Completely

Tianyu Digital Technology (Dalian) Group Co., Ltd. (SZSE:002354) shares have continued their recent momentum with a 40% gain in the last month alone. The annual gain comes to 115% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, it's still not a stretch to say that Tianyu Digital Technology (Dalian) Group's price-to-sales (or "P/S") ratio of 8.4x right now seems quite "middle-of-the-road" compared to the Entertainment industry in China, where the median P/S ratio is around 7.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Tianyu Digital Technology (Dalian) Group

What Does Tianyu Digital Technology (Dalian) Group's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Tianyu Digital Technology (Dalian) Group's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 P/S?

The only time you'd be comfortable seeing a P/S like Tianyu Digital Technology (Dalian) Group's is when the company's growth is tracking the industry closely.

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 10%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 14% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Turning to the outlook, the next year should generate growth of 25% as estimated by the sole analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 23%, which is noticeably less attractive.

In light of this, it's curious that Tianyu Digital Technology (Dalian) Group's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Tianyu Digital Technology (Dalian) Group's P/S Mean For Investors?

Its shares have lifted substantially and now Tianyu Digital Technology (Dalian) Group's P/S is back within range of the industry median. 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.

Despite enticing revenue growth figures that outpace the industry, Tianyu Digital Technology (Dalian) Group's P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Before you take the next step, you should know about the 1 warning sign for Tianyu Digital Technology (Dalian) Group that we have uncovered.

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.