Tianyu Digital Technology (Dalian) Group Co., Ltd.'s (SZSE:002354) P/S Is Still On The Mark Following 31% Share Price Bounce

Tianyu Digital Technology (Dalian) Group Co., Ltd. (SZSE:002354) shares have continued their recent momentum with a 31% gain in the last month alone. Looking further back, the 11% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Tianyu Digital Technology (Dalian) Group's P/S ratio of 6.3x, since the median price-to-sales (or "P/S") ratio for the Entertainment industry in China is also close to 7.2x. 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

How Tianyu Digital Technology (Dalian) Group Has Been Performing

Tianyu Digital Technology (Dalian) Group 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. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Want the full picture on analyst estimates for the company? Then our free report on Tianyu Digital Technology (Dalian) Group will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

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

Retrospectively, the last year delivered a frustrating 10% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 14% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue should grow by 25% over the next year. Meanwhile, the rest of the industry is forecast to expand by 24%, which is not materially different.

In light of this, it's understandable that Tianyu Digital Technology (Dalian) Group's P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On Tianyu Digital Technology (Dalian) Group's P/S

Tianyu Digital Technology (Dalian) Group appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in 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.

We've seen that Tianyu Digital Technology (Dalian) Group maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

Before you settle on your opinion, we've discovered 1 warning sign for Tianyu Digital Technology (Dalian) Group that you should be aware of.

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.

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.