Bit Digital, Inc. (NASDAQ:BTBT) Stock Catapults 162% Though Its Price And Business Still Lag The Market

Bit Digital, Inc. (NASDAQ:BTBT) shareholders would be excited to see that the share price has had a great month, posting a 162% gain and recovering from prior weakness. The annual gain comes to 187% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 18x, you may still consider Bit Digital as an attractive investment with its 15.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been quite advantageous for Bit Digital as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Bit Digital

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Bit Digital's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Bit Digital would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 217% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 12% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Bit Digital is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Bit Digital's P/E?

The latest share price surge wasn't enough to lift Bit Digital's P/E close to the market median. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Bit Digital revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Bit Digital (at least 1 which shouldn't be ignored), and understanding these should be part of your investment process.

Of course, you might also be able to find a better stock than Bit Digital. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

If you decide to trade Bit Digital, use the lowest-cost* platform that is rated #1 Overall by Barron’s, Interactive Brokers. Trade stocks, options, futures, forex, bonds and funds on 135 markets, all from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.