Even With A 27% Surge, Cautious Investors Are Not Rewarding Forge Global Holdings, Inc.'s (NYSE:FRGE) Performance Completely

Forge Global Holdings, Inc. (NYSE:FRGE) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 50% share price drop in the last twelve months.

In spite of the firm bounce in price, Forge Global Holdings may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2.3x, considering almost half of all companies in the Capital Markets industry in the United States have P/S ratios greater than 3.4x and even P/S higher than 9x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Forge Global Holdings

What Does Forge Global Holdings' P/S Mean For Shareholders?

Recent times haven't been great for Forge Global Holdings as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

How Is Forge Global Holdings' Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Forge Global Holdings' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 18%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 32% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 28% during the coming year according to the six analysts following the company. That's shaping up to be materially higher than the 1.8% growth forecast for the broader industry.

With this in consideration, we find it intriguing that Forge Global Holdings' P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

Despite Forge Global Holdings' share price climbing recently, its P/S still lags most other companies. 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.

To us, it seems Forge Global Holdings currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

You should always think about risks. Case in point, we've spotted 3 warning signs for Forge Global Holdings you should be aware of.

If these risks are making you reconsider your opinion on Forge Global Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.