Even With A 34% Surge, Cautious Investors Are Not Rewarding Frontier Digital Ventures Limited's (ASX:FDV) Performance Completely

Those holding Frontier Digital Ventures Limited (ASX:FDV) shares would be relieved that the share price has rebounded 34% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 56% share price drop in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think Frontier Digital Ventures' price-to-sales (or "P/S") ratio of 1.8x is worth a mention when the median P/S in Australia's Interactive Media and Services industry is similar at about 2.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Check out our latest analysis for Frontier Digital Ventures

How Has Frontier Digital Ventures Performed Recently?

With revenue growth that's inferior to most other companies of late, Frontier Digital Ventures has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Frontier Digital Ventures.

Is There Some Revenue Growth Forecasted For Frontier Digital Ventures?

The only time you'd be comfortable seeing a P/S like Frontier Digital Ventures' is when the company's growth is tracking the industry closely.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Although pleasingly revenue has lifted 32% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

Turning to the outlook, the next three years should generate growth of 11% per annum as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 7.2% per annum, which is noticeably less attractive.

With this in consideration, we find it intriguing that Frontier Digital Ventures' P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Frontier Digital Ventures' P/S?

Frontier Digital Ventures' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Frontier Digital Ventures currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for Frontier Digital Ventures that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.