Market Still Lacking Some Conviction On Auxly Cannabis Group Inc. (TSE:XLY)
Auxly Cannabis Group Inc.'s (TSE:XLY) price-to-sales (or "P/S") ratio of 0.2x might make it look like a buy right now compared to the Pharmaceuticals industry in Canada, where around half of the companies have P/S ratios above 1x and even P/S above 3x are quite common. 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 Auxly Cannabis Group
What Does Auxly Cannabis Group's Recent Performance Look Like?
While the industry has experienced revenue growth lately, Auxly Cannabis Group's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. 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 Auxly Cannabis Group will help you uncover what's on the horizon.
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 low as Auxly Cannabis Group's is when the company's growth is on track to lag the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.5%. The latest three year period has seen an incredible overall rise in revenue, a stark contrast to the last 12 months. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.
Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 19% each year over the next three years. That's shaping up to be materially higher than the 14% per annum growth forecast for the broader industry.
In light of this, it's peculiar that Auxly Cannabis Group's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Key Takeaway
Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
A look at Auxly Cannabis Group's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.
Plus, you should also learn about these 4 warning signs we've spotted with Auxly Cannabis Group (including 2 which are a bit unpleasant).
If these risks are making you reconsider your opinion on Auxly Cannabis Group, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.
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