Lion Group Holding Ltd.'s (NASDAQ:LGHL) price-to-sales (or "P/S") ratio of 0.4x might make it look like a strong buy right now compared to the Capital Markets industry in the United States, where around half of the companies have P/S ratios above 2.8x and even P/S above 7x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Lion Group Holding

How Lion Group Holding Has Been Performing

Lion Group Holding certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Lion Group Holding's earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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

If we review the last year of revenue growth, the company posted a terrific increase of 31%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 24% drop in revenue in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 8.1% shows it's an unpleasant look.

With this information, we are not surprised that Lion Group Holding is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of Lion Group Holding confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.