Positive Sentiment Still Eludes Bitfarms Ltd. (TSE:BITF) Following 25% Share Price Slump

Bitfarms Ltd. (TSE:BITF) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 69% share price decline.

Following the heavy fall in price, Bitfarms' price-to-sales (or "P/S") ratio of 2.3x might make it look like a buy right now compared to the Software industry in Canada, where around half of the companies have P/S ratios above 3.3x and even P/S above 8x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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Check out our latest analysis for Bitfarms

What Does Bitfarms' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Bitfarms has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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.

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

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

Taking a look back first, we see that the company grew revenue by an impressive 26% last year. As a result, it also grew revenue by 15% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 62% during the coming year according to the five analysts following the company. That's shaping up to be materially higher than the 20% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Bitfarms' P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Bitfarms' P/S

Bitfarms' P/S has taken a dip along with its share price. 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.

A look at Bitfarms' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Bitfarms (2 don't sit too well with us!) that you should be aware of before investing here.

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.