CleanSpark, Inc. (NASDAQ:CLSK) shareholders who had been waiting for something took a hit last month when the stock price fell 34%. Of course, many would still want to own shares in the long run, as the stock price is up 128% over the past twelve months.

Although the price has dropped significantly, CleanSpark’s price-to-sales (or “P/S”) ratio of 8.6 may still be sending very bearish signals right now, given that nearly half of all software industry companies in the United States have P/S ratios below 4.6x, and even P/S ratios below 1.7x are not uncommon. Still, we would have to dig a little deeper to determine if there is a rational basis for the greatly elevated P/S.

Check out our latest analysis for CleanSpark

How CleanSpark has proven itself

CleanSpark has definitely done well recently, as it has been able to grow its revenue more than most other companies. It seems that the market expects this form to continue in the future, hence the elevated P/S ratio. That’s something you really hope for, otherwise you’re paying a pretty high price for no particular reason.

If you want to know what analysts are predicting for the future, you should check out our free Report on CleanSpark.

Do the sales forecasts correspond to the high P/S ratio?

To justify its P/S ratio, CleanSpark would have to deliver outstanding growth that significantly exceeds the industry.

If we look at last year’s revenue growth, the company saw a fantastic 141% increase. The last three-year period also saw an incredible overall increase in revenue, supported by incredible short-term performance. Accordingly, shareholders would have been over the moon with these medium-term revenue growth rates.

Looking ahead, the five analysts covering the company expect revenue to grow 85% next year, well above the 24% growth forecast for the industry as a whole.

With this information, we can see why CleanSpark trades at such a high price-to-earnings ratio compared to the industry. It seems that most investors expect this strong future growth and are willing to pay more for the stock.

The conclusion on CleanSparks P/S

CleanSpark’s shares may have suffered, but its price-to-sales ratio remains high. It’s not useful to use the price-to-sales ratio alone to determine whether you should sell your shares, but it can be a handy guide to the company’s future prospects.

As we suspected, our study of CleanSpark’s analyst forecasts found that its above-average revenue outlook contributes to its high P/S ratio. At this point, investors believe that a deterioration in revenue is quite unlikely, justifying the elevated P/S ratio. Under these circumstances, it is difficult to imagine the share price falling much in the near future.

Before you form an opinion, we found out 3 warning signs for CleanSpark (1 is worrying!) that you should know about.

It is important, Make sure you are looking for a great company and not just the first idea that comes to mind. So if increasing profitability matches your idea of ​​a great company, take a look at this free List of interesting companies with strong recent earnings growth (and low P/E ratios).

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.