Digihost Technology Inc. (CVE:DGHI) Stock Rockets 84% But Many Are Still Ignoring The Company

The Digihost Technology Inc. (CVE:DGHI) share price has done very well over the last month, posting an excellent gain of 84%. Looking back a bit further, it's encouraging to see the stock is up 41% in the last year.

Although its price has surged higher, Digihost Technology's price-to-sales (or "P/S") ratio of 1.6x might still make it look like a strong buy right now compared to the wider Software industry in Canada, where around half of the companies have P/S ratios above 3.7x 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 so limited.

See our latest analysis for Digihost Technology

How Digihost Technology Has Been Performing

Recent times have been advantageous for Digihost Technology as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 98% gain to the company's top line. Pleasingly, revenue has also lifted 233% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 34% during the coming year according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 19%, which is noticeably less attractive.

With this information, we find it odd that Digihost Technology is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Digihost Technology's P/S

Digihost Technology's recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

To us, it seems Digihost Technology currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Digihost Technology (1 is significant!) that you need to be mindful of.

If you're unsure about the strength of Digihost Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.