There wouldn't be many who think DFI Retail Group Holdings Limited's (SGX:D01) price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S for the Consumer Retailing industry in Singapore is similar at about 0.4x. 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 DFI Retail Group Holdings' P/S Mean For Shareholders?

The recently shrinking revenue for DFI Retail Group Holdings has been in line with the industry. Perhaps the market is expecting future revenue performance to continue matching the industry, which has kept the P/S in line with expectations. You'd much rather the company improve its revenue if you still believe in the business. In saying that, existing shareholders probably aren't too pessimistic about the share price if the company's revenue continues tracking the industry.

Is There Some Revenue Growth Forecasted For DFI Retail Group Holdings?

There's an inherent assumption that a company should be matching the industry for P/S ratios like DFI Retail Group Holdings' 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 2.0%. As a result, revenue from three years ago have also fallen 5.9% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 0.1% during the coming year according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 10%, which is noticeably more attractive.

With this in mind, we find it intriguing that DFI Retail Group Holdings' P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From DFI Retail Group Holdings' P/S?

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.

When you consider that DFI Retail Group Holdings' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 2 warning signs for DFI Retail Group Holdings (1 shouldn't be ignored!) that you should be aware of.

If these risks are making you reconsider your opinion on DFI Retail Group 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.