Subdued Growth No Barrier To Digitalist Group Plc (HEL:DIGIGR) With Shares Advancing 29%

Digitalist Group Plc (HEL:DIGIGR) shares have continued their recent momentum with a 29% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 2.3% isn't as impressive.

In spite of the firm bounce in price, it's still not a stretch to say that Digitalist Group's price-to-sales (or "P/S") ratio of 0.8x right now seems quite "middle-of-the-road" compared to the IT industry in Finland, where the median P/S ratio is around 0.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Digitalist Group

How Digitalist Group Has Been Performing

For example, consider that Digitalist Group's financial performance has been poor lately as its revenue has been in decline. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Digitalist Group will help you shine a light on its historical performance.

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 frustrating 8.9% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 17% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 1.0% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we find it worrying that Digitalist Group's P/S exceeds that of its industry peers. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Bottom Line On Digitalist Group's P/S

Digitalist Group appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We find it unexpected that Digitalist Group trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You need to take note of risks, for example - Digitalist Group has 4 warning signs (and 3 which can't be ignored) we think you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.