Dong Yi Ri Sheng Home Decoration Group Co.,Ltd. (SZSE:002713) shares have continued their recent momentum with a 28% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 47% over that time.

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 0.9x, considering almost half of all companies in the Consumer Services industry in China have P/S ratios greater than 4.8x and even P/S higher than 11x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

What Does Dong Yi Ri Sheng Home Decoration GroupLtd's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Dong Yi Ri Sheng Home Decoration GroupLtd over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

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

The only time you'd be truly comfortable seeing a P/S as depressed as Dong Yi Ri Sheng Home Decoration GroupLtd's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a frustrating 32% decrease to the company's top line. As a result, revenue from three years ago have also fallen 55% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 40% shows it's an unpleasant look.

In light of this, it's understandable that Dong Yi Ri Sheng Home Decoration GroupLtd's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Bottom Line On Dong Yi Ri Sheng Home Decoration GroupLtd's P/S

Even after such a strong price move, Dong Yi Ri Sheng Home Decoration GroupLtd's P/S still trails the rest of the 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.

Our examination of Dong Yi Ri Sheng Home Decoration GroupLtd confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Before you take the next step, you should know about the 3 warning signs for Dong Yi Ri Sheng Home Decoration GroupLtd that we have uncovered.

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.