With A 27% Price Drop For Marathon Digital Holdings, Inc. (NASDAQ:MARA) You'll Still Get What You Pay For

Marathon Digital Holdings, Inc. (NASDAQ:MARA) shares have had a horrible month, losing 27% after a relatively good period beforehand. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

In spite of the heavy fall in price, Marathon Digital Holdings' price-to-sales (or "P/S") ratio of 7.9x might still make it look like a strong sell right now compared to other companies in the Software industry in the United States, where around half of the companies have P/S ratios below 4.5x and even P/S below 1.6x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Marathon Digital Holdings

What Does Marathon Digital Holdings' P/S Mean For Shareholders?

Recent times have been advantageous for Marathon Digital Holdings as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

What Are Revenue Growth Metrics Telling Us About The High P/S?

The only time you'd be truly comfortable seeing a P/S as steep as Marathon Digital Holdings' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 225% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 46% as estimated by the ten analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 22%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Marathon Digital Holdings' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Marathon Digital Holdings' P/S?

Even after such a strong price drop, Marathon Digital Holdings' P/S still exceeds the industry median significantly. 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.

Our look into Marathon Digital Holdings shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you take the next step, you should know about the 4 warning signs for Marathon Digital Holdings (3 shouldn't be ignored!) that we have uncovered.

If you're unsure about the strength of Marathon Digital Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.