Frontier Digital Ventures Limited's (ASX:FDV) P/S Is Still On The Mark Following 28% Share Price Bounce

Frontier Digital Ventures Limited (ASX:FDV) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 4.3% isn't as impressive.

Since its price has surged higher, when almost half of the companies in Australia's Interactive Media and Services industry have price-to-sales ratios (or "P/S") below 2.7x, you may consider Frontier Digital Ventures as a stock probably not worth researching with its 3.8x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Frontier Digital Ventures

What Does Frontier Digital Ventures' P/S Mean For Shareholders?

Frontier Digital Ventures could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Frontier Digital Ventures will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

The only time you'd be truly comfortable seeing a P/S as high as Frontier Digital Ventures' is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a decent 15% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 226% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 15% each year during the coming three years according to the dual analysts following the company. That's shaping up to be materially higher than the 9.1% each year growth forecast for the broader industry.

In light of this, it's understandable that Frontier Digital Ventures' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Frontier Digital Ventures' P/S

Frontier Digital Ventures' P/S is on the rise since its shares have risen strongly. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into Frontier Digital Ventures shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Frontier Digital Ventures that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.