Stronghold Digital Mining, Inc. (NASDAQ:SDIG) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 2.2% isn't as attractive.

In spite of the firm bounce in price, Stronghold Digital Mining may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.6x, since almost half of all companies in the Software industry in the United States have P/S ratios greater than 4.2x and even P/S higher than 11x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for Stronghold Digital Mining

What Does Stronghold Digital Mining's P/S Mean For Shareholders?

Stronghold Digital Mining could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Stronghold Digital Mining?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Stronghold Digital Mining's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 28%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, despite the drawbacks experienced in the last 12 months. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

Turning to the outlook, the next year should generate growth of 39% as estimated by the two analysts watching the company. With the industry only predicted to deliver 15%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Stronghold Digital Mining's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On Stronghold Digital Mining's P/S

Shares in Stronghold Digital Mining have risen appreciably however, its P/S is still subdued. 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.

A look at Stronghold Digital Mining's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

There are also other vital risk factors to consider and we've discovered 5 warning signs for Stronghold Digital Mining (2 make us uncomfortable!) that you should be aware of before investing here.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.