Dogness (International) Corporation's (NASDAQ:DOGZ) Shares Climb 75% But Its Business Is Yet to Catch Up

Despite an already strong run, Dogness (International) Corporation (NASDAQ:DOGZ) shares have been powering on, with a gain of 75% in the last thirty days. Looking further back, the 22% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, when almost half of the companies in the United States' Luxury industry have price-to-sales ratios (or "P/S") below 0.8x, you may consider Dogness (International) as a stock not worth researching with its 16.9x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Dogness (International)

How Dogness (International) Has Been Performing

For example, consider that Dogness (International)'s financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Dogness (International)'s earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Dogness (International)?

In order to justify its P/S ratio, Dogness (International) would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 28% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 30% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 5.4% shows it's an unpleasant look.

In light of this, it's alarming that Dogness (International)'s P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Key Takeaway

The strong share price surge has lead to Dogness (International)'s P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Dogness (International) revealed its shrinking revenue over the medium-term isn't resulting in a P/S as low as we expected, given the industry is set to grow. Right now we aren't comfortable with the high P/S as this revenue performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Before you settle on your opinion, we've discovered 3 warning signs for Dogness (International) (2 make us uncomfortable!) that you should be aware of.

If these risks are making you reconsider your opinion on Dogness (International), 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com