Yahoo Finance Why Investors Shouldn't Be Surprised By Flow Beverage Corp.'s (TSE:FLOW) 26% Share Price Plunge
To the annoyance of some shareholders, Flow Beverage Corp. (TSE:FLOW) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 43% share price drop.
Since its price has dipped substantially, Flow Beverage's price-to-sales (or "P/S") ratio of 0.3x might make it look like a buy right now compared to the Beverage industry in Canada, where around half of the companies have P/S ratios above 1.4x and even P/S above 4x 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 Flow Beverage
How Has Flow Beverage Performed Recently?
Recent times have been advantageous for Flow Beverage as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
Keen to find out how analysts think Flow Beverage's future stacks up against the industry? In that case, our free report is a great place to start.
Do Revenue Forecasts Match The Low P/S Ratio?
The only time you'd be truly comfortable seeing a P/S as low as Flow Beverage's is when the company's growth is on track to lag the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 16%. The strong recent performance means it was also able to grow revenue by 123% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 1.3% during the coming year according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 7.0%, which is noticeably more attractive.
With this information, we can see why Flow Beverage is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Bottom Line On Flow Beverage's P/S
Flow Beverage's P/S has taken a dip along with its share price. 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.
As we suspected, our examination of Flow Beverage's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
And what about other risks? Every company has them, and we've spotted 5 warning signs for Flow Beverage you should know about.
If these risks are making you reconsider your opinion on Flow Beverage, 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.
