Shanghai DOBE Cultural & Creative Industry Development (Group)Co. LTD.'s (SZSE:300947) Popularity With Investors Under Threat As Stock Sinks 26%

To the annoyance of some shareholders, Shanghai DOBE Cultural & Creative Industry Development (Group)Co. LTD. (SZSE:300947) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 24% share price drop.

In spite of the heavy fall in price, it's still not a stretch to say that Shanghai DOBE Cultural & Creative Industry Development (Group)Co's price-to-sales (or "P/S") ratio of 1.6x right now seems quite "middle-of-the-road" compared to the Real Estate industry in China, seeing as it matches the P/S ratio of the wider industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Shanghai DOBE Cultural & Creative Industry Development (Group)Co

How Shanghai DOBE Cultural & Creative Industry Development (Group)Co Has Been Performing

Shanghai DOBE Cultural & Creative Industry Development (Group)Co has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. 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 not quite in 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 Shanghai DOBE Cultural & Creative Industry Development (Group)Co's earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Shanghai DOBE Cultural & Creative Industry Development (Group)Co?

The only time you'd be comfortable seeing a P/S like Shanghai DOBE Cultural & Creative Industry Development (Group)Co's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 22% last year. Revenue has also lifted 20% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 9.1% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Shanghai DOBE Cultural & Creative Industry Development (Group)Co's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Final Word

Following Shanghai DOBE Cultural & Creative Industry Development (Group)Co's share price tumble, its P/S is just clinging on to the industry median P/S. 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 established that Shanghai DOBE Cultural & Creative Industry Development (Group)Co's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

Having said that, be aware Shanghai DOBE Cultural & Creative Industry Development (Group)Co is showing 4 warning signs in our investment analysis, and 2 of those are potentially serious.

If you're unsure about the strength of Shanghai DOBE Cultural & Creative Industry Development (Group)Co'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.