Cann Group Limited's (ASX:CAN) Revenues Are Not Doing Enough For Some Investors
Cann Group Limited's (ASX:CAN) price-to-sales (or "P/S") ratio of 2.5x might make it look like a buy right now compared to the Pharmaceuticals industry in Australia, where around half of the companies have P/S ratios above 4.7x and even P/S above 24x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
Check out our latest analysis for Cann Group
How Has Cann Group Performed Recently?
With revenue growth that's exceedingly strong of late, Cann Group has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. Those who are bullish on Cann Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Cann Group will help you shine a light on its historical performance.
Do Revenue Forecasts Match The Low P/S Ratio?
The only time you'd be truly comfortable seeing a P/S as low as Cann Group's is when the company's growth is on track to lag the industry.
Taking a look back first, we see that the company grew revenue by an impressive 93% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.
Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 588% shows it's noticeably less attractive.
With this in consideration, it's easy to understand why Cann Group's P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.
What We Can Learn From Cann Group's P/S?
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.
Our examination of Cann Group confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.
It is also worth noting that we have found 5 warning signs for Cann Group (2 are concerning!) that you need to take into consideration.
If you're unsure about the strength of Cann Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
