Take Care Before Jumping Onto DBAPPSecurity Co., Ltd. (SHSE:688023) Even Though It's 26% Cheaper

To the annoyance of some shareholders, DBAPPSecurity Co., Ltd. (SHSE:688023) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 76% loss during that time.

Since its price has dipped substantially, DBAPPSecurity's price-to-sales (or "P/S") ratio of 2.1x might make it look like a strong buy right now compared to the wider Software industry in China, where around half of the companies have P/S ratios above 4.9x and even P/S above 9x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

View our latest analysis for DBAPPSecurity

What Does DBAPPSecurity's Recent Performance Look Like?

Recent times have been advantageous for DBAPPSecurity as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think DBAPPSecurity's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

DBAPPSecurity'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, we see that the company managed to grow revenues by a handy 9.3% last year. The latest three year period has also seen an excellent 64% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 36% each year as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 24% per year, which is noticeably less attractive.

In light of this, it's peculiar that DBAPPSecurity'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.

What We Can Learn From DBAPPSecurity's P/S?

Having almost fallen off a cliff, DBAPPSecurity's share price has pulled its P/S way down as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

DBAPPSecurity'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. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Having said that, be aware DBAPPSecurity is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of DBAPPSecurity's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.