Investors Aren't Entirely Convinced By Village Farms International, Inc.'s (NASDAQ:VFF) Revenues
Village Farms International, Inc.'s (NASDAQ:VFF) price-to-sales (or "P/S") ratio of 0.3x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Food industry in the United States have P/S ratios greater than 0.8x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
See our latest analysis for Village Farms International
How Has Village Farms International Performed Recently?
Village Farms International could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Village Farms International will help you uncover what's on the horizon.
Do Revenue Forecasts Match The Low P/S Ratio?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Village Farms International's to be considered reasonable.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.4%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 80% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.
Turning to the outlook, the next three years should generate growth of 11% per annum as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 2.9% per year growth forecast for the broader industry.
With this in consideration, we find it intriguing that Village Farms International's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
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.
To us, it seems Village Farms International currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.
We don't want to rain on the parade too much, but we did also find 3 warning signs for Village Farms International that you need to be mindful of.
If you're unsure about the strength of Village Farms International's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
