Bitfarms Ltd.'s (TSE:BITF) Share Price Is Still Matching Investor Opinion Despite 28% Slump

Bitfarms Ltd. (TSE:BITF) shares have had a horrible month, losing 28% after a relatively good period beforehand. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 42% in that time.

In spite of the heavy fall in price, when almost half of the companies in Canada's Software industry have price-to-sales ratios (or "P/S") below 3.3x, you may still consider Bitfarms as a stock probably not worth researching with its 4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Bitfarms

What Does Bitfarms' P/S Mean For Shareholders?

Bitfarms certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

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

In order to justify its P/S ratio, Bitfarms would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 44% gain to the company's top line. The latest three year period has also seen an excellent 51% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 107% during the coming year according to the eight analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 18%, which is noticeably less attractive.

In light of this, it's understandable that Bitfarms' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Despite the recent share price weakness, Bitfarms' P/S remains higher than most other companies in 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.

Our look into Bitfarms shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Bitfarms is showing 3 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Bitfarms, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.