Doushen (Beijing) Education & Technology INC. (SZSE:300010) Shares Slammed 39% But Getting In Cheap Might Be Difficult Regardless

The Doushen (Beijing) Education & Technology INC. (SZSE:300010) share price has softened a substantial 39% over the previous 30 days, handing back much of the gains the stock has made lately. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 153% in the last twelve months.

In spite of the heavy fall in price, Doushen (Beijing) Education & Technology's price-to-sales (or "P/S") ratio of 14.6x might still make it look like a strong sell right now compared to other companies in the Software industry in China, where around half of the companies have P/S ratios below 6.1x and even P/S below 3x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Doushen (Beijing) Education & Technology

What Does Doushen (Beijing) Education & Technology's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Doushen (Beijing) Education & Technology's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. If not, then existing shareholders may be extremely nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Doushen (Beijing) Education & Technology.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Doushen (Beijing) Education & Technology would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 23% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 45% during the coming year according to the one analyst following the company. With the industry only predicted to deliver 30%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Doushen (Beijing) Education & Technology's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Doushen (Beijing) Education & Technology's P/S Mean For Investors?

A significant share price dive has done very little to deflate Doushen (Beijing) Education & Technology's very lofty P/S. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Doushen (Beijing) Education & Technology maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Software industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Doushen (Beijing) Education & Technology.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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.