Dates ZA (WSE:DAD) shares have continued their recent momentum, gaining 27% in the past month alone. The past 30 days bring the annual gain to a very sharp 48%.

Since the price has skyrocketed, while almost half of the companies in the Polish Specialty Retail industry have a price-to-sales ratio (or “P/S”) of less than 0.8x, you might consider Dadelo a stock that is probably not worth investigating with its P/S ratio of 1.5x. However, it is not wise to take the P/S at face value as there might be an explanation as to why it is so high.

Check out our latest analysis for Dadelo

What does Dadelo’s P/S mean for shareholders?

With revenue growth that has been exceptionally strong lately, Dadelo is doing very well. Perhaps the market expects future revenue performance to outperform the broader market, which has apparently made people interested in the stock. However, if this is not the case, investors could be caught paying too much for the stock.

While there are no analyst estimates available for Dadelo, check this out free data-rich visualization to see how the company is performing in terms of profit, revenue and cash flow.

Is sufficient revenue growth predicted for Dadelo?

Only if the company’s growth outpaces the rest of the sector would you really feel comfortable with a P/S as high as Dadelo’s.

Firstly, if we look back, we can see that the company’s revenue grew by an impressive 60% last year. Fortunately, revenue is also up 200% overall compared to three years ago, thanks to the growth over the last 12 months. Therefore, it’s fair to say that revenue growth has been excellent for the company recently.

When compared to the rest of the sector, which is forecast to grow just 16% over the next 12 months, the company’s momentum is stronger based on recent medium-term annualised revenue numbers.

With this information, we can see why Dadelo is trading at such a high P/S compared to the industry. It seems that most investors expect this strong growth to continue and are willing to pay more for the stock.

The last word

Dadelo stock has taken a big step north, but the P/S has been raised as a result. While the price-to-sales ratio should not be the determining factor in whether or not to buy a stock, it is a pretty good barometer for revenue expectations.

It’s no surprise that Dadelo can support its high P/S, given the strong revenue growth it has seen over the past three years, which is better than the current outlook for the sector. At the moment, shareholders are happy with the P/S because they are fairly confident that revenue is not at risk. Unless there are significant changes in the company’s ability to make money, the stock price should continue to climb.

And what about other risks? Every company has them, and we discovered them 3 warning signs for Dadelo that you should know.

If you are interested in strong companies that make a profit, then you should definitely check this out free list of interesting companies that trade at a low price/earnings ratio (but have proven they can grow their profits).

Do you have feedback on this article? Are you concerned about the content? Contact Us directly with us. You can also email editorial-team (at) simplywallst.com.

This article from Simply Wall St is general in nature. We comment solely on historical data and analyst forecasts, using an objective methodology. Our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any shares and does not take into account your objectives or financial situation. We aim to provide you with a long-term analysis driven by fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in the shares mentioned.

Do you have feedback on this article? Are you concerned about the content? Please contact us directly. You can also send an email to [email protected]