Why We're Not Concerned Yet About Riot Platforms, Inc.'s (NASDAQ:RIOT) 29% Share Price Plunge

Riot Platforms, Inc. (NASDAQ:RIOT) shares have retraced a considerable 29% in the last month, reversing a fair amount of their solid recent performance. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 22%.

In spite of the heavy fall in price, Riot Platforms may still be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 9x, when you consider almost half of the companies in the Software industry in the United States have P/S ratios under 4.8x and even P/S lower than 2x aren't out of the ordinary. 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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See our latest analysis for Riot Platforms

What Does Riot Platforms' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Riot Platforms has been doing relatively well. 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.

Keen to find out how analysts think Riot Platforms' 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?

Riot Platforms' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 104%. The strong recent performance means it was also able to grow revenue by 120% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 39% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 30% per year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Riot Platforms' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Riot Platforms' shares may have suffered, but its P/S remains high. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into Riot Platforms shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Riot Platforms (at least 2 which are a bit unpleasant), and understanding these should be part of your investment process.

If you're unsure about the strength of Riot Platforms' 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.