There's Reason For Concern Over 4iG Nyrt.'s (BUSE:4IG) Price

Explore 4iG Nyrt's Fair Values from the Community and select yours

There wouldn't be many who think 4iG Nyrt.'s (BUSE:4IG) price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S for the IT industry in Hungary 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.

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See our latest analysis for 4iG Nyrt

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

With revenue growth that's superior to most other companies of late, 4iG Nyrt has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Keen to find out how analysts think 4iG Nyrt's future stacks up against the industry? In that case, our free report is a great place to start.

How Is 4iG Nyrt's Revenue Growth Trending?

In order to justify its P/S ratio, 4iG Nyrt would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, even though the last 12 months were fairly tame in comparison. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue growth is heading into negative territory, declining 81% over the next year. Meanwhile, the broader industry is forecast to expand by 3.4%, which paints a poor picture.

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. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

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

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

It appears that 4iG Nyrt currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

You always need to take note of risks, for example - 4iG Nyrt has 1 warning sign we think you should be aware of.

If you're unsure about the strength of 4iG Nyrt'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.