Market Participants Recognise Bitfarms Ltd.'s (TSE:BITF) Revenues Pushing Shares 45% Higher

Bitfarms Ltd. (TSE:BITF) shares have had a really impressive month, gaining 45% after a shaky period beforehand. The last month tops off a massive increase of 137% in the last year.

After such a large jump in price, Bitfarms may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 7x, when you consider almost half of the companies in the Software industry in Canada have P/S ratios under 3.7x and even P/S lower than 1.6x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Bitfarms

How Bitfarms Has Been Performing

With revenue growth that's superior to most other companies of late, Bitfarms has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Bitfarms?

The only time you'd be truly comfortable seeing a P/S as steep as Bitfarms' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 37% gain to the company's top line. Pleasingly, revenue has also lifted 107% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 101% as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 19%, which is noticeably less attractive.

In light of this, it's understandable that Bitfarms' 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 Key Takeaway

Shares in Bitfarms have seen a strong upwards swing lately, which has really helped boost its P/S figure. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Bitfarms' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Bitfarms (1 can't be ignored) you should be aware of.

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.