Market Participants Recognise Applied Digital Corporation's (NASDAQ:APLD) Revenues Pushing Shares 77% Higher
Applied Digital Corporation (NASDAQ:APLD) shares have had a really impressive month, gaining 77% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 21% over that time.
Since its price has surged higher, Applied Digital's price-to-sales (or "P/S") ratio of 7.8x might make it look like a strong sell right now compared to other companies in the Software industry in the United States, where around half of the companies have P/S ratios below 4.4x and even P/S below 1.9x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
Check out our latest analysis for Applied Digital
How Has Applied Digital Performed Recently?
With revenue growth that's superior to most other companies of late, Applied Digital has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Keen to find out how analysts think Applied Digital's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Applied Digital's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as steep as Applied Digital's is when the company's growth is on track to outshine the industry decidedly.
Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. In spite of this unbelievable short-term growth, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.
Turning to the outlook, the next year should generate growth of 437% as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 13%, which is noticeably less attractive.
With this information, we can see why Applied Digital is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
What We Can Learn From Applied Digital's P/S?
Applied Digital's P/S has grown nicely over the last month thanks to a handy boost in the share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
As we suspected, our examination of Applied Digital's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
There are also other vital risk factors to consider and we've discovered 3 warning signs for Applied Digital (1 can't be ignored!) that you should be aware of before investing here.
If you're unsure about the strength of Applied Digital's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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