Tianyu Digital Technology (Dalian) Group Co., Ltd. (SZSE:002354) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 17% in the last twelve months.

In spite of the firm bounce in price, Tianyu Digital Technology (Dalian) Group's price-to-sales (or "P/S") ratio of 4.5x might still make it look like a buy right now compared to the Entertainment industry in China, where around half of the companies have P/S ratios above 6.7x and even P/S above 12x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does Tianyu Digital Technology (Dalian) Group's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Tianyu Digital Technology (Dalian) Group's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Do Revenue Forecasts Match The Low P/S Ratio?

Tianyu Digital Technology (Dalian) Group's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 6.2% 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 70% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 47% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 30% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Tianyu Digital Technology (Dalian) Group's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What Does Tianyu Digital Technology (Dalian) Group's P/S Mean For Investors?

Tianyu Digital Technology (Dalian) Group's stock price has surged recently, but its but its P/S still remains modest. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

A look at Tianyu Digital Technology (Dalian) Group's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

It is also worth noting that we have found 1 warning sign for Tianyu Digital Technology (Dalian) Group that you need to take into consideration.

If you're unsure about the strength of Tianyu Digital Technology (Dalian) Group's 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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