Lion Group Holding Ltd. (NASDAQ:LGHL) Not Doing Enough For Some Investors As Its Shares Slump 28%

Lion Group Holding Ltd. (NASDAQ:LGHL) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 95% share price decline.

Since its price has dipped substantially, Lion Group Holding may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.2x, considering almost half of all companies in the Capital Markets industry in the United States have P/S ratios greater than 3.3x and even P/S higher than 8x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for Lion Group Holding

How Has Lion Group Holding Performed Recently?

For instance, Lion Group Holding's receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Lion Group Holding 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 Lion Group Holding, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Lion Group Holding's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 20%. The last three years don't look nice either as the company has shrunk revenue by 24% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 11% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we understand why Lion Group Holding's P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Key Takeaway

Having almost fallen off a cliff, Lion Group Holding's share price has pulled its P/S way down as well. 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.

As we suspected, our examination of Lion Group Holding revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Lion Group Holding (of which 3 are significant!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.