Stronghold Digital Mining, Inc. (NASDAQ:SDIG) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 61% share price decline.

Following the heavy fall in price, Stronghold Digital Mining's price-to-sales (or "P/S") ratio of 0.4x might make it look like a strong buy right now compared to the wider Software industry in the United States, where around half of the companies have P/S ratios above 4.5x and even P/S above 11x are quite common. 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.

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

Stronghold Digital Mining 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.

How Is Stronghold Digital Mining's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Stronghold Digital Mining's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a frustrating 13% decrease to the company's top line. In spite of this, the company still managed to deliver immense revenue growth over the last three years. 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 6.5% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 22%, which is noticeably more attractive.

In light of this, it's understandable that Stronghold Digital Mining's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Stronghold Digital Mining's P/S?

Having almost fallen off a cliff, Stronghold Digital Mining's share price has pulled its P/S way down as well. 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.

We've established that Stronghold Digital Mining maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

You should always think about risks. Case in point, we've spotted 7 warning signs for Stronghold Digital Mining you should be aware of, and 4 of them don't sit too well with us.

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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