Improved Revenues Required Before Dubber Corporation Limited (ASX:DUB) Stock's 27% Jump Looks Justified
Dubber Corporation Limited (ASX:DUB) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 41% in the last twelve months.
Although its price has surged higher, Dubber's price-to-sales (or "P/S") ratio of 1.2x might still make it look like a strong buy right now compared to the wider Software industry in Australia, where around half of the companies have P/S ratios above 3.6x and even P/S above 9x 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 so limited.
View our latest analysis for Dubber
What Does Dubber's P/S Mean For Shareholders?
Dubber has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this acceptable revenue performance to take a 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.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Dubber will help you shine a light on its historical performance.How Is Dubber's Revenue Growth Trending?
In order to justify its P/S ratio, Dubber would need to produce anemic growth that's substantially trailing the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 9.1% last year. The latest three year period has also seen an excellent 157% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 46% shows it's noticeably less attractive.
In light of this, it's understandable that Dubber's P/S sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.
The Bottom Line On Dubber's P/S
Shares in Dubber have risen appreciably however, its P/S is still subdued. 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.
In line with expectations, Dubber maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.
It is also worth noting that we have found 4 warning signs for Dubber (2 are significant!) that you need to take into consideration.
If these risks are making you reconsider your opinion on Dubber, 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.