Organto Foods Inc.'s (CVE:OGO) Shares Not Telling The Full Story
Organto Foods Inc.'s (CVE:OGO) price-to-sales (or "P/S") ratio of 0.8x might make it look like a buy right now compared to the Food industry in Canada, where around half of the companies have P/S ratios above 1.4x and even P/S above 8x 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 Organto Foods
What Does Organto Foods' Recent Performance Look Like?
Organto Foods could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre 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 Organto Foods will help you uncover what's on the horizon.
How Is Organto Foods' Revenue Growth Trending?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Organto Foods' to be considered reasonable.
If we review the last year of revenue growth, the company posted a worthy increase of 4.1%. While this performance is only fair, the company was still 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.
Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 131% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 4.0%, which is noticeably less attractive.
In light of this, it's peculiar that Organto Foods' 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 Bottom Line On Organto Foods' 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.
A look at Organto Foods' 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. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.
You need to take note of risks, for example - Organto Foods has 5 warning signs (and 2 which can't be ignored) we think you should know about.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.
