CleanSpark, Inc.'s (NASDAQ:CLSK) Stock Retreats 34% But Revenues Haven't Escaped The Attention Of Investors

CleanSpark, Inc. (NASDAQ:CLSK) shareholders that were waiting for something to happen have been dealt a blow with a 34% share price drop in the last month. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 128% in the last twelve months.

Although its price has dipped substantially, CleanSpark may still be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 8.6x, since almost half of all companies in the Software industry in the United States have P/S ratios under 4.6x and even P/S lower than 1.7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for CleanSpark

How CleanSpark Has Been Performing

CleanSpark certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on CleanSpark.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, CleanSpark would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 141%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 85% over the next year. That's shaping up to be materially higher than the 24% growth forecast for the broader industry.

With this information, we can see why CleanSpark is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On CleanSpark's P/S

CleanSpark's shares may have suffered, but its P/S remains high. Using the price-to-sales 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 CleanSpark's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 3 warning signs for CleanSpark (1 is concerning!) that you should be aware of.

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.