Revenues Not Telling The Story For 4iG Nyrt. (BUSE:4IG) After Shares Rise 28%

4iG Nyrt. (BUSE:4IG) shares have continued their recent momentum with a 28% gain in the last month alone. The annual gain comes to 219% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, there still wouldn't be many who think 4iG Nyrt's price-to-sales (or "P/S") ratio of 1.1x is worth a mention when the median P/S in Hungary's IT industry is similar at about 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

See our latest analysis for 4iG Nyrt

How 4iG Nyrt Has Been Performing

4iG Nyrt certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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 not quite in favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on 4iG Nyrt.

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

The only time you'd be comfortable seeing a P/S like 4iG Nyrt's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a worthy increase of 9.6%. Pleasingly, revenue has also lifted 283% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue growth is heading into negative territory, declining 81% over the next year. With the industry predicted to deliver 4.2% growth, that's a disappointing outcome.

With this information, we find it concerning that 4iG Nyrt is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What Does 4iG Nyrt's P/S Mean For Investors?

4iG Nyrt appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

It appears that 4iG Nyrt currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for 4iG Nyrt that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.