Dong Yi Ri Sheng Home Decoration Group Co.,Ltd. (SZSE:002713) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 9.4% over the last year.

Even after such a large jump in price, Dong Yi Ri Sheng Home Decoration GroupLtd may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.1x, considering almost half of all companies in the Consumer Services industry in China have P/S ratios greater than 3.5x and even P/S higher than 9x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

How Has Dong Yi Ri Sheng Home Decoration GroupLtd Performed Recently?

Dong Yi Ri Sheng Home Decoration GroupLtd could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

How Is Dong Yi Ri Sheng Home Decoration GroupLtd's Revenue Growth Trending?

Dong Yi Ri Sheng Home Decoration GroupLtd's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 13%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 40% as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 28%, which is noticeably less attractive.

With this information, we find it odd that Dong Yi Ri Sheng Home Decoration GroupLtd is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Dong Yi Ri Sheng Home Decoration GroupLtd's recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

To us, it seems Dong Yi Ri Sheng Home Decoration GroupLtd currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Dong Yi Ri Sheng Home Decoration GroupLtd with six simple checks will allow you to discover any risks that could be an issue.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.