Applied Digital Corporation's (NASDAQ:APLD) Stock Retreats 32% But Revenues Haven't Escaped The Attention Of Investors

Unfortunately for some shareholders, the Applied Digital Corporation (NASDAQ:APLD) share price has dived 32% in the last thirty days, prolonging recent pain. The recent drop has obliterated the annual return, with the share price now down 4.5% over that longer period.

Although its price has dipped substantially, you could still be forgiven for thinking Applied Digital is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.5x, considering almost half the companies in the United States' IT industry have P/S ratios below 1.7x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Applied Digital

How Has Applied Digital Performed Recently?

Recent times have been advantageous for Applied Digital as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Applied Digital will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

Applied Digital's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. Although, its longer-term performance hasn't been anywhere near as strong with three-year revenue growth being relatively non-existent overall. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to climb by 81% during the coming year according to the five analysts following the company. With the industry only predicted to deliver 9.1%, the company is positioned for a stronger revenue result.

With this information, we can see why Applied Digital is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Applied Digital's P/S remain high even after its stock plunged. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Applied Digital maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the IT industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Applied Digital is showing 4 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Applied Digital, 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.