The FingerMotion, Inc. (NASDAQ:FNGR) share price has fared very poorly over the last month, falling by a substantial 27%. Longer-term shareholders would now have taken a real hit with the stock declining 6.0% in the last year.

Even after such a large drop in price, you could still be forgiven for thinking FingerMotion is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2x, considering almost half the companies in the United States' Wireless Telecom industry have P/S ratios below 1.3x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

How FingerMotion Has Been Performing

As an illustration, revenue has deteriorated at FingerMotion over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on FingerMotion will help you shine a light on its historical performance.

How Is FingerMotion's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like FingerMotion's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 1.3%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 23% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 5.1%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we can see why FingerMotion is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Key Takeaway

FingerMotion's P/S remain high even after its stock plunged. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that FingerMotion maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

If these risks are making you reconsider your opinion on FingerMotion, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.