Investors Appear Satisfied With FingerMotion, Inc.'s (NASDAQ:FNGR) Prospects As Shares Rocket 26%

Those holding FingerMotion, Inc. (NASDAQ:FNGR) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 17% in the last twelve months.

Since its price has surged higher, given close to half the companies operating in the United States' Wireless Telecom industry have price-to-sales ratios (or "P/S") below 1.5x, you may consider FingerMotion as a stock to potentially avoid with its 3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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View our latest analysis for FingerMotion

What Does FingerMotion's Recent Performance Look Like?

FingerMotion has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S ratio is high because investors think this respectable revenue growth will be enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 FingerMotion's earnings, revenue and cash flow.

How Is FingerMotion's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like FingerMotion's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 12%. Pleasingly, revenue has also lifted 64% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 4.9% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that FingerMotion's P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Bottom Line On FingerMotion's P/S

FingerMotion shares have taken a big step in a northerly direction, but its P/S is elevated as a result. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that FingerMotion maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

We don't want to rain on the parade too much, but we did also find 3 warning signs for FingerMotion (2 don't sit too well with us!) that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.