To the annoyance of some shareholders, Argo Blockchain plc (LON:ARB) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The last month has meant the stock is now only up 2.1% during the last year.
Since its price has dipped substantially, Argo Blockchain’s price-to-sales (or “P/S”) ratio of 2x might make it look like a buy right now compared to the Software industry in the United Kingdom, where around half of the companies have P/S ratios above 2.6x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it’s justified.
Check out our latest analysis for Argo Blockchain
How Argo Blockchain Has Been Performing
Argo Blockchain hasn’t been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.
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Is There Any Revenue Growth Forecasted For Argo Blockchain?
Argo Blockchain’s P/S ratio would be typical for a company that’s only expected to deliver limited growth, and importantly, perform worse than the industry.
Retrospectively, the last year delivered a frustrating 40% decrease to the company’s top line. Even so, admirably revenue has lifted 94% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.
Turning to the outlook, the next three years should generate growth of 47% per year as estimated by the four analysts watching the company. With the industry only predicted to deliver 11% each year, the company is positioned for a stronger revenue result.
In light of this, it’s peculiar that Argo Blockchain’s P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Final Word
The southerly movements of Argo Blockchain’s shares means its P/S is now sitting at a pretty low level. Typically, we’d caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Argo Blockchain’s analyst forecasts revealed that its superior revenue outlook isn’t contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.
Before you settle on your opinion, we’ve discovered 5 warning signs for Argo Blockchain (2 are a bit unpleasant!) that you should be aware 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.