Digitalist Group Plc (HEL:DIGIGR) Stock's 31% Dive Might Signal An Opportunity But It Requires Some Scrutiny

Digitalist Group Plc (HEL:DIGIGR) shareholders won't be pleased to see that the share price has had a very rough month, dropping 31% and undoing the prior period's positive performance. The last month has meant the stock is now only up 2.9% during the last year.

Even after such a large drop in price, it's still not a stretch to say that Digitalist Group's price-to-sales (or "P/S") ratio of 0.7x right now seems quite "middle-of-the-road" compared to the IT industry in Finland, where the median P/S ratio is around 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for Digitalist Group

What Does Digitalist Group's Recent Performance Look Like?

Digitalist Group has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. Those who are bullish on Digitalist Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Digitalist Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Digitalist Group's Revenue Growth Trending?

Digitalist Group's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. Still, lamentably revenue has fallen 10% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for a contraction of 24% shows the industry is even less attractive on an annualised basis.

In light of this, the fact Digitalist Group's P/S sits in line with the majority of other companies is unanticipated but certainly not shocking. There's no guarantee the P/S has found a floor yet with recent revenue going backwards, despite the industry heading down even harder. Even just maintaining these prices will be difficult to achieve as recent revenue trends are already weighing down the shares.

The Bottom Line On Digitalist Group's P/S

Digitalist Group's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

Our examination of Digitalist Group revealed its narrower three-year contraction in revenue isn't contributing to its P/S as much as we would have predicted, given the industry is set to shrink even more. There could be some unobserved threats to revenue preventing the P/S ratio from matching this more attractive performance. Perhaps there is some hesitation about the company's ability to deviate from the industry's dismal performance and maintain a relatively smaller revenue decline. It appears some are indeed anticipating revenue instability, because this relative performance should normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Digitalist Group (at least 3 which are potentially serious), and understanding them should be part of your investment process.

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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.