Frontier Digital Ventures Limited's (ASX:FDV) Shares Leap 26% Yet They're Still Not Telling The Full Story

Frontier Digital Ventures Limited (ASX:FDV) shareholders have had their patience rewarded with a 26% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 27%.

Even after such a large jump in price, it's still not a stretch to say that Frontier Digital Ventures' price-to-sales (or "P/S") ratio of 3.1x right now seems quite "middle-of-the-road" compared to the Interactive Media and Services industry in Australia, where the median P/S ratio is around 2.8x. 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.

See 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. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

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.

How Is Frontier Digital Ventures' Revenue Growth Trending?

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 the company grew revenue by an impressive 18% last year. The strong recent performance means it was also able to grow revenue by 112% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 9.8% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 1.6%, which is noticeably less attractive.

With this information, we find it interesting that Frontier Digital Ventures is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Its shares have lifted substantially and now Frontier Digital Ventures' P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

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. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Frontier Digital Ventures with six simple checks on some of these key factors.

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.