Dingyi Group Investment Limited (HKG:508) Screens Well But There Might Be A Catch

Dingyi Group Investment Limited's (HKG:508) price-to-sales (or "P/S") ratio of 0.3x might make it look like a buy right now compared to the Diversified Financial industry in Hong Kong, where around half of the companies have P/S ratios above 1.9x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Our free stock report includes 2 warning signs investors should be aware of before investing in Dingyi Group Investment. Read for free now.

Check out our latest analysis for Dingyi Group Investment

What Does Dingyi Group Investment's Recent Performance Look Like?

Recent times have been quite advantageous for Dingyi Group Investment as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. 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 out of 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 Dingyi Group Investment's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Dingyi Group Investment?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Dingyi Group Investment's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 163% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 26% shows it's noticeably more attractive.

In light of this, it's peculiar that Dingyi Group Investment's P/S sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

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.

We're very surprised to see Dingyi Group Investment currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Dingyi Group Investment that you should be aware of.

If you're unsure about the strength of Dingyi Group Investment'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.