Bitfarms Ltd.'s (TSE:BITF) 25% Jump Shows Its Popularity With Investors

Bitfarms Ltd. (TSE:BITF) shares have continued their recent momentum with a 25% gain in the last month alone. The last month tops off a massive increase of 209% in the last year.

After such a large jump in price, Bitfarms may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 7.5x, since almost half of all companies in the Software industry in Canada have P/S ratios under 3.6x and even P/S lower than 1.5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Bitfarms

How Bitfarms Has Been Performing

Bitfarms could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Bitfarms?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Bitfarms' to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 27%. Still, the latest three year period has seen an excellent 275% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 85% over the next year. With the industry only predicted to deliver 19%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Bitfarms' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Bitfarms' P/S?

The strong share price surge has lead to Bitfarms' P/S soaring as well. 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.

Our look into Bitfarms 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. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Bitfarms 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.