Forge Global Holdings, Inc.'s (NYSE:FRGE) Shares Leap 30% Yet They're Still Not Telling The Full Story

Forge Global Holdings, Inc. (NYSE:FRGE) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Looking further back, the 14% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, Forge Global Holdings' price-to-sales (or "P/S") ratio of 3.1x might still make it look like a buy right now compared to the Capital Markets industry in the United States, where around half of the companies have P/S ratios above 4x and even P/S above 12x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Forge Global Holdings

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

With revenue growth that's inferior to most other companies of late, Forge Global Holdings has been relatively sluggish. 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.

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Is There Any Revenue Growth Forecasted For Forge Global Holdings?

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

Retrospectively, the last year delivered a decent 15% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 3.4% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 27% as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 7.1%, which is noticeably less attractive.

In light of this, it's peculiar that Forge Global Holdings' P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

The latest share price surge wasn't enough to lift Forge Global Holdings' P/S close to the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A look at Forge Global Holdings' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Plus, you should also learn about these 3 warning signs we've spotted with Forge Global Holdings.

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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.