Take Care Before Diving Into The Deep End On Dada Nexus Limited (NASDAQ:DADA)

There wouldn't be many who think Dada Nexus Limited's (NASDAQ:DADA) price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S for the Consumer Retailing industry in the United States is similar at about 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Dada Nexus

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

Dada Nexus hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Dada Nexus will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Dada Nexus would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 2.6% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 57% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 8.9% each year as estimated by the eleven analysts watching the company. With the industry only predicted to deliver 4.8% per annum, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Dada Nexus' P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Dada Nexus' P/S?

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.

We've established that Dada Nexus currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Dada Nexus that you need to be mindful of.

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.

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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.