Take Care Before Jumping Onto Dada Nexus Limited (NASDAQ:DADA) Even Though It's 28% Cheaper

To the annoyance of some shareholders, Dada Nexus Limited (NASDAQ:DADA) shares are down a considerable 28% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 77% share price decline.

Even after such a large drop in price, there still wouldn't be many who think Dada Nexus' price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in the United States' Consumer Retailing industry is similar at about 0.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Dada Nexus

How Dada Nexus Has Been Performing

Recent revenue growth for Dada Nexus has been in line with the industry. It seems that many are expecting the mediocre revenue performance to persist, which has held the P/S ratio back. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

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

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.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.5% last year. Pleasingly, revenue has also lifted 65% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 9.2% per year during the coming three years according to the eleven analysts following the company. That's shaping up to be materially higher than the 5.0% per annum growth forecast for the broader industry.

With this information, we find it interesting that Dada Nexus is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

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

With its share price dropping off a cliff, the P/S for Dada Nexus looks to be in line with the rest of the Consumer Retailing industry. 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.

Looking at Dada Nexus' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

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.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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