Digihost Technology Inc. (CVE:DGHI) Stock's 25% Dive Might Signal An Opportunity But It Requires Some Scrutiny

The Digihost Technology Inc. (CVE:DGHI) share price has fared very poorly over the last month, falling by a substantial 25%. Longer-term, the stock has been solid despite a difficult 30 days, gaining 14% in the last year.

Following the heavy fall in price, Digihost Technology may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1x, since almost half of all companies in the Software industry in Canada have P/S ratios greater than 3.7x and even P/S higher than 9x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out 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. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think Digihost Technology's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For Digihost Technology?

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

Taking a look back first, we see that the company grew revenue by an impressive 98% last year. Pleasingly, revenue has also lifted 233% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 34% during the coming year according to the sole analyst following the company. With the industry only predicted to deliver 20%, the company is positioned for a stronger revenue result.

With this information, we find it odd that Digihost Technology is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Shares in Digihost Technology have plummeted and its P/S has followed suit. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

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. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Digihost Technology (1 is potentially serious) you should be aware of.

If these risks are making you reconsider your opinion on Digihost Technology, 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.