Slammed 25% DonkeyRepublic Holding A/S (CPH:DONKEY) Screens Well Here But There Might Be A Catch

The DonkeyRepublic Holding A/S (CPH:DONKEY) share price has fared very poorly over the last month, falling by a substantial 25%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 21% share price drop.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about DonkeyRepublic Holding's P/S ratio of 0.8x, since the median price-to-sales (or "P/S") ratio for the Transportation industry in Denmark is also close to 0.6x. 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.

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See our latest analysis for DonkeyRepublic Holding

How Has DonkeyRepublic Holding Performed Recently?

DonkeyRepublic Holding certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on DonkeyRepublic Holding will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on DonkeyRepublic Holding will help you shine a light on its historical performance.

Do Revenue Forecasts Match The P/S Ratio?

DonkeyRepublic Holding'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 an exceptional 31% gain to the company's top line. The latest three year period has also seen an excellent 252% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 0.3% shows it's noticeably more attractive.

With this information, we find it interesting that DonkeyRepublic Holding is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What Does DonkeyRepublic Holding's P/S Mean For Investors?

Following DonkeyRepublic Holding's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

We didn't quite envision DonkeyRepublic Holding's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Plus, you should also learn about these 3 warning signs we've spotted with DonkeyRepublic Holding (including 2 which are significant).

If these risks are making you reconsider your opinion on DonkeyRepublic Holding, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.