The Dingdong (Cayman) Limited (NYSE:DDL) share price has done very well over the last month, posting an excellent gain of 50%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 48% in the last twelve months.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Dingdong (Cayman)'s P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Consumer Retailing industry in the United States is also close to 0.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

What Does Dingdong (Cayman)'s Recent Performance Look Like?

While the industry has experienced revenue growth lately, Dingdong (Cayman)'s revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Dingdong (Cayman)'s to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 16%. Still, the latest three year period has seen an excellent 60% overall rise in revenue, in spite of its unsatisfying short-term performance. 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 year should generate growth of 9.4% as estimated by the eight analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 9.1%, which is not materially different.

With this in mind, it makes sense that Dingdong (Cayman)'s P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What Does Dingdong (Cayman)'s P/S Mean For Investors?

Dingdong (Cayman)'s stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Our look at Dingdong (Cayman)'s revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Dingdong (Cayman), and understanding should be part of your investment process.

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.