The Market Lifts The Fresh Factory B.C. Ltd. (CVE:FRSH) Shares 31% But It Can Do More

The The Fresh Factory B.C. Ltd. (CVE:FRSH) share price has done very well over the last month, posting an excellent gain of 31%. Looking further back, the 19% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, there still wouldn't be many who think Fresh Factory B.C's price-to-sales (or "P/S") ratio of 1.2x is worth a mention when the median P/S in Canada's Food industry is similar at about 0.9x. 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.

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View our latest analysis for Fresh Factory B.C

What Does Fresh Factory B.C's Recent Performance Look Like?

Recent times have been quite advantageous for Fresh Factory B.C as its revenue has been rising very briskly. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Fresh Factory B.C 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 Fresh Factory B.C will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For Fresh Factory B.C?

The only time you'd be comfortable seeing a P/S like Fresh Factory B.C's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 38% gain to the company's top line. Pleasingly, revenue has also lifted 146% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 4.0%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's curious that Fresh Factory B.C's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What We Can Learn From Fresh Factory B.C's P/S?

Fresh Factory B.C's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

To our surprise, Fresh Factory B.C revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with Fresh Factory B.C.

If these risks are making you reconsider your opinion on Fresh Factory B.C, 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.