Freedom Holding (FRHC) is in focus after its subsidiary secured Financial Services Permission from Abu Dhabi Global Market, opening access to Middle Eastern institutional and high-net-worth clients and expanding the group’s international footprint.

The ADGM license arrives after a mixed run in the stock, with a 7 day share price return of 3.77% but a 90 day share price return decline of 18.72% and a 1 year total shareholder return loss of 8.48%. The 3 year and 5 year total shareholder returns of roughly 2x and over 2.5x suggest longer term momentum has previously been strong.

If this kind of cross border expansion has caught your attention, it could be a good moment to broaden your watchlist with fast growing stocks with high insider ownership.

With the Abu Dhabi license secured and a mixed share price track record, the key question now is whether Freedom Holding’s current valuation still leaves room for upside or if the market is already pricing in its future growth potential.

Preferred Price-to-Sales of 5x: Is it justified?

Freedom Holding shares last closed at $127.19, and on a P/S basis the stock screens as expensive compared with both its US capital markets peers and its closer peer group.

The P/S ratio compares the company’s market value to its revenue, so a 5x reading implies investors are currently paying $5 for every $1 of annual sales. For a diversified financial services group like Freedom Holding, this kind of premium usually reflects expectations around future revenue growth, business mix or profitability that differ from the average US capital markets company.

Here, the data points in the Statements highlight a clear gap. Freedom Holding trades on a 5x P/S ratio, while the broader US Capital Markets industry sits at 4.1x and its peer average is 2.4x. That is a sizeable step up from both benchmarks, with no accompanying revenue or earnings forecasts available in the data to explain why the market is assigning such a higher sales multiple.

Put together, the current market price embeds a P/S multiple that is materially richer than both industry and peer averages, which is worth keeping in mind if you are comparing alternatives in the same space.

Result: Price-to-sales of 5x (OVERVALUED)

However, you also have to weigh risks such as the very low reported net income of US$4.709m on revenue of US$1,563.51m, as well as any execution issues tied to its broader international expansion, including the new Abu Dhabi operation.

Another View: Our DCF Model Paints A Harsher Picture

The SWS DCF model points in the same direction as the P/S signal, with Freedom Holding trading at $127.19 versus an estimated future cash flow value of $56.21. That gap suggests the current price incorporates a lot of optimism, so you have to ask: what has to go right for that to hold?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Freedom Holding for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 881 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Freedom Holding Narrative

If you see the numbers differently or prefer to base decisions on your own work, you can build a personal view in minutes with Do it your way.

A great starting point for your Freedom Holding research is our analysis highlighting 1 important warning sign that could impact your investment decision.

Looking for more investment ideas?

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• Scan for potential bargains by running through these 881 undervalued stocks based on cash flows that line up current prices with underlying cash flow strength.
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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.