Why We're Not Concerned Yet About Eshbal Functional Food Inc.'s (CVE:ESBL) 29% Share Price Plunge

Unfortunately for some shareholders, the Eshbal Functional Food Inc. (CVE:ESBL) share price has dived 29% in the last thirty days, prolonging recent pain. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

Even after such a large drop in price, there still wouldn't be many who think Eshbal Functional Food's price-to-sales (or "P/S") ratio of 0.6x is worth a mention when it essentially matches the median P/S in Canada's Food industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for Eshbal Functional Food

How Has Eshbal Functional Food Performed Recently?

The revenue growth achieved at Eshbal Functional Food over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Eshbal Functional Food will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Eshbal Functional Food will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Eshbal Functional Food?

Eshbal Functional Food's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. Revenue has also lifted 5.7% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 1.3% shows it's about the same on an annualised basis.

With this information, we can see why Eshbal Functional Food is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Bottom Line On Eshbal Functional Food's P/S

Following Eshbal Functional Food's share price tumble, its P/S is just clinging on to the industry median P/S. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we've seen, Eshbal Functional Food's three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. With previous revenue trends that keep up with the current industry outlook, it's hard to justify the company's P/S ratio deviating much from it's current point. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Eshbal Functional Food (1 makes us a bit uncomfortable!) that you should be aware of.

If you're unsure about the strength of Eshbal Functional Food's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.