Those holding GDS Holdings Limited (NASDAQ:GDS) shares would be relieved that the share price has rebounded 28% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 67% share price decline over the last year.

Even after such a large jump in price, GDS Holdings' price-to-sales (or "P/S") ratio of 0.9x might still make it look like a buy right now compared to the IT industry in the United States, where around half of the companies have P/S ratios above 2x and even P/S above 5x 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.

How GDS Holdings Has Been Performing

Recent times haven't been great for GDS Holdings as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, GDS Holdings would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 7.6% gain to the company's revenues. Pleasingly, revenue has also lifted 85% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 13% per annum during the coming three years according to the analysts following the company. With the industry predicted to deliver 12% growth each year, the company is positioned for a comparable revenue result.

With this in consideration, we find it intriguing that GDS Holdings' P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On GDS Holdings' P/S

The latest share price surge wasn't enough to lift GDS Holdings' P/S close to the industry median. 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.

We've seen that GDS Holdings currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

It is also worth noting that we have found 2 warning signs for GDS Holdings that you need to take into consideration.

If these risks are making you reconsider your opinion on GDS Holdings, 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.