Stock Analysis

Dada Nexus Limited's (NASDAQ:DADA) Popularity With Investors Is Clear

NasdaqGS:DADA
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When close to half the companies in the Consumer Retailing industry in the United States have price-to-sales ratios (or "P/S") below 0.4x, you may consider Dada Nexus Limited (NASDAQ:DADA) as a stock to potentially avoid with its 1.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Dada Nexus

ps-multiple-vs-industry
NasdaqGS:DADA Price to Sales Ratio vs Industry August 7th 2023

What Does Dada Nexus' P/S Mean For Shareholders?

Dada Nexus certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Dada Nexus.

Is There Enough Revenue Growth Forecasted For Dada Nexus?

In order to justify its P/S ratio, Dada Nexus would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 37% last year. The strong recent performance means it was also able to grow revenue by 170% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 27% over the next year. With the industry only predicted to deliver 4.0%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Dada Nexus' 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 We Can Learn From Dada Nexus' 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've established that Dada Nexus maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Consumer Retailing industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Dada Nexus you should know about.

If you're unsure about the strength of Dada Nexus' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Valuation is complex, but we're helping make it simple.

Find out whether Dada Nexus is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.