To the annoyance of some shareholders, Cipher Mining Inc. (NASDAQ:CIFR) shares are down a considerable 30% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 47% share price drop.
Although its price has dipped substantially, Cipher Mining may still be sending sell signals at present with a price-to-sales (or "P/S") ratio of 5.3x, when you consider almost half of the companies in the Software industry in the United States have P/S ratios under 4.1x and even P/S lower than 1.7x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.
View our latest analysis for Cipher Mining
How Cipher Mining Has Been Performing
Cipher Mining certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.
Keen to find out how analysts think Cipher Mining's future stacks up against the industry? In that case, our free report is a great place to start .What Are Revenue Growth Metrics Telling Us About The High P/S?
Cipher Mining's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 19%. Still, revenue has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 86% per annum as estimated by the ten analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 15% each year, which is noticeably less attractive.
With this information, we can see why Cipher Mining 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.
The Bottom Line On Cipher Mining's P/S
There's still some elevation in Cipher Mining's P/S, even if the same can't be said for its share price recently. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
We've established that Cipher Mining maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Software industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.
And what about other risks? Every company has them, and we've spotted 4 warning signs for Cipher Mining (of which 2 are concerning!) you should know about.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.