Despite an already strong run, Dingdong (Cayman) Limited (NYSE:DDL) shares have been powering on, with a gain of 30% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 49% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Dingdong (Cayman)'s price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in the United States' Consumer Retailing industry is similar at about 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Dingdong (Cayman) Has Been Performing

Dingdong (Cayman) could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Do Revenue Forecasts Match The P/S Ratio?

Dingdong (Cayman)'s P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.6%. Still, the latest three year period has seen an excellent 42% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 8.8% as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 4.8% growth forecast for the broader industry.

With this information, we find it interesting that Dingdong (Cayman) is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Dingdong (Cayman)'s P/S

Its shares have lifted substantially and now Dingdong (Cayman)'s P/S is back within range of 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 established that Dingdong (Cayman) currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 2 warning signs for Dingdong (Cayman) that you need to take into consideration.

If these risks are making you reconsider your opinion on Dingdong (Cayman), 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.