Riot Platforms, Inc. (NASDAQ:RIOT) Stock Rockets 31% As Investors Are Less Pessimistic Than Expected

Riot Platforms, Inc. (NASDAQ:RIOT) shares have continued their recent momentum with a 31% gain in the last month alone. The last month tops off a massive increase of 126% in the last year.

After such a large jump in price, Riot Platforms may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 12.1x, since almost half of all companies in the Software industry in the United States have P/S ratios under 5.3x and even P/S lower than 2x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Riot Platforms

What Does Riot Platforms' P/S Mean For Shareholders?

Recent times have been advantageous for Riot Platforms 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Riot Platforms?

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

Taking a look back first, we see that the company grew revenue by an impressive 93% last year. Pleasingly, revenue has also lifted 76% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 32% each year during the coming three years according to the analysts following the company. With the industry predicted to deliver 37% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's alarming that Riot Platforms' P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What Does Riot Platforms' P/S Mean For Investors?

The strong share price surge has lead to Riot Platforms' P/S soaring as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've concluded that Riot Platforms currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 4 warning signs for Riot Platforms 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.