Yahoo Finance Aurora Cannabis Inc.'s (TSE:ACB) P/S Is On The Mark
There wouldn't be many who think Aurora Cannabis Inc.'s (TSE:ACB) price-to-sales (or "P/S") ratio of 1.2x is worth a mention when the median P/S for the Pharmaceuticals industry in Canada is similar at about 1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Check out our latest analysis for Aurora Cannabis
What Does Aurora Cannabis' P/S Mean For Shareholders?
While the industry has experienced revenue growth lately, Aurora Cannabis' revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. However, if this isn't the case, investors might get caught out paying too much for the stock.
Keen to find out how analysts think Aurora Cannabis' future stacks up against the industry? In that case, our free report is a great place to start.
What Are Revenue Growth Metrics Telling Us About The P/S?
There's an inherent assumption that a company should be matching the industry for P/S ratios like Aurora Cannabis' to be considered reasonable.
Retrospectively, the last year delivered a frustrating 8.3% decrease to the company's top line. As a result, revenue from three years ago have also fallen 27% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 21% per year during the coming three years according to the eight analysts following the company. With the industry predicted to deliver 20% growth per annum, the company is positioned for a comparable revenue result.
With this in mind, it makes sense that Aurora Cannabis' P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.
The Key Takeaway
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.
A Aurora Cannabis' P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Pharmaceuticals industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. Unless these conditions change, they will continue to support the share price at these levels.
Having said that, be aware Aurora Cannabis is showing 2 warning signs in our investment analysis, you should know about.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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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