To the annoyance of some shareholders, DBAPPSecurity Co., Ltd. (SHSE:688023) shares are down a considerable 27% 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 55% share price decline.

After such a large drop in price, DBAPPSecurity may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 3.5x, considering almost half of all companies in the Software industry in China have P/S ratios greater than 6.1x and even P/S higher than 10x 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 reduced P/S.

See our latest analysis for DBAPPSecurity

How Has DBAPPSecurity Performed Recently?

With revenue growth that's superior to most other companies of late, DBAPPSecurity has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you 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.

Is There Any Revenue Growth Forecasted For DBAPPSecurity?

There's an inherent assumption that a company should underperform the industry for P/S ratios like DBAPPSecurity's to be considered reasonable.

Retrospectively, the last year delivered a decent 7.7% gain to the company's revenues. Pleasingly, revenue has also lifted 90% 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 33% per year during the coming three years according to the twelve analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 29% per year, which is noticeably less attractive.

With this in consideration, we find it intriguing that DBAPPSecurity'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.

The Key Takeaway

The southerly movements of DBAPPSecurity's shares means its P/S is now sitting at a pretty low level. 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.

DBAPPSecurity's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for DBAPPSecurity with six simple checks.

If these risks are making you reconsider your opinion on DBAPPSecurity, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.