Greenlane Renewables Inc. (TSE:GRN) Looks Inexpensive After Falling 27% But Perhaps Not Attractive Enough

Greenlane Renewables Inc. (TSE:GRN) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. Longer-term shareholders would now have taken a real hit with the stock declining 5.9% in the last year.

Since its price has dipped substantially, Greenlane Renewables may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Oil and Gas industry in Canada have P/S ratios greater than 1.9x and even P/S higher than 6x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Our free stock report includes 2 warning signs investors should be aware of before investing in Greenlane Renewables. Read for free now.

View our latest analysis for Greenlane Renewables

What Does Greenlane Renewables' P/S Mean For Shareholders?

For example, consider that Greenlane Renewables' financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Greenlane Renewables' earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Greenlane Renewables' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 5.1% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 6.4% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 4.5% shows it's an unpleasant look.

In light of this, it's understandable that Greenlane Renewables' P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On Greenlane Renewables' P/S

The southerly movements of Greenlane Renewables' shares means its P/S is now sitting at a pretty low level. 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.

Our examination of Greenlane Renewables confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

It is also worth noting that we have found 2 warning signs for Greenlane Renewables that you need to take into consideration.

If these risks are making you reconsider your opinion on Greenlane Renewables, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.