The Market Doesn't Like What It Sees From Digital China Information Service Group Company Ltd.'s (SZSE:000555) Revenues Yet

You may think that with a price-to-sales (or "P/S") ratio of 1x Digital China Information Service Group Company Ltd. (SZSE:000555) is definitely a stock worth checking out, seeing as almost half of all the IT companies in China have P/S ratios greater than 4.7x and even P/S above 9x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Digital China Information Service Group

How Digital China Information Service Group Has Been Performing

Digital China Information Service Group could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Digital China Information Service Group will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Digital China Information Service Group?

In order to justify its P/S ratio, Digital China Information Service Group would need to produce anemic growth that's substantially trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 5.9%. The solid recent performance means it was also able to grow revenue by 10.0% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 4.9% as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 19%, which is noticeably more attractive.

In light of this, it's understandable that Digital China Information Service Group's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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.

As expected, our analysis of Digital China Information Service Group's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Digital China Information Service Group you should know about.

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.

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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.