Duiba Group Limited (HKG:1753) shares have had a really impressive month, gaining 35% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 52% in the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Duiba Group's P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Interactive Media and Services industry in Hong Kong is also close to 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

What Does Duiba Group's P/S Mean For Shareholders?

For example, consider that Duiba Group's financial performance has been poor lately as its revenue has been in decline. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Duiba Group's Revenue Growth Trending?

In order to justify its P/S ratio, Duiba Group would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 53% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 36% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 9.5% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's somewhat alarming that Duiba Group's P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Bottom Line On Duiba Group's P/S

Duiba Group's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

The fact that Duiba Group currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

It is also worth noting that we have found 2 warning signs for Duiba Group (1 is concerning!) that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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