Ðuro Ðakovic Grupa d.d. (ZGSE:DDJH) Stocks Pounded By 28% But Not Lagging Industry On Growth Or Pricing

The Ðuro Ðakovic Grupa d.d. (ZGSE:DDJH) share price has fared very poorly over the last month, falling by a substantial 28%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 40% share price drop.

Even after such a large drop in price, when almost half of the companies in Croatia's Machinery industry have price-to-sales ratios (or "P/S") below 0.9x, you may still consider Ðuro Ðakovic Grupa d.d as a stock not worth researching with its 4.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Ðuro Ðakovic Grupa d.d

How Ðuro Ðakovic Grupa d.d Has Been Performing

Revenue has risen firmly for Ðuro Ðakovic Grupa d.d recently, which is pleasing to see. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Ðuro Ðakovic Grupa d.d's Revenue Growth Trending?

Ðuro Ðakovic Grupa d.d's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a decent 15% gain to the company's revenues. Pleasingly, revenue has also lifted 144% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Comparing that to the industry, which is only predicted to deliver 3.8% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we can see why Ðuro Ðakovic Grupa d.d is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Key Takeaway

A significant share price dive has done very little to deflate Ðuro Ðakovic Grupa d.d's very lofty P/S. 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.

It's no surprise that Ðuro Ðakovic Grupa d.d can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - Ðuro Ðakovic Grupa d.d has 2 warning signs we think you should be aware of.

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.