Yahoo Finance Not Many Are Piling Into Youdao, Inc. (NYSE:DAO) Stock Yet As It Plummets 28%
Youdao, Inc. (NYSE:DAO) shareholders won't be pleased to see that the share price has had a very rough month, dropping 28% and undoing the prior period's positive performance. The recent drop has obliterated the annual return, with the share price now down 8.0% over that longer period.
Following the heavy fall in price, considering around half the companies operating in the United States' Consumer Services industry have price-to-sales ratios (or "P/S") above 1.6x, you may consider Youdao as an solid investment opportunity with its 1x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for Youdao
What Does Youdao's Recent Performance Look Like?
With revenue growth that's superior to most other companies of late, Youdao has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Youdao will help you uncover what's on the horizon.
Is There Any Revenue Growth Forecasted For Youdao?
Youdao's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
Retrospectively, the last year delivered an exceptional 25% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.
Turning to the outlook, the next three years should generate growth of 22% per year as estimated by the seven analysts watching the company. That's shaping up to be materially higher than the 11% per annum growth forecast for the broader industry.
With this information, we find it odd that Youdao is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
What Does Youdao's P/S Mean For Investors?
The southerly movements of Youdao's shares means its P/S is now sitting at a pretty low level. 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.
Youdao'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. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.
You should always think about risks. Case in point, we've spotted 2 warning signs for Youdao you should be aware of, and 1 of them is significant.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
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