Green Rise Foods Inc. (CVE:GRF) Might Not Be As Mispriced As It Looks After Plunging 31%

The Green Rise Foods Inc. (CVE:GRF) share price has fared very poorly over the last month, falling by a substantial 31%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 41% share price drop.

Even after such a large drop in price, it's still not a stretch to say that Green Rise Foods' price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the Food industry in Canada, seeing as it matches the P/S ratio of the wider industry. 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.

See our latest analysis for Green Rise Foods

How Has Green Rise Foods Performed Recently?

The revenue growth achieved at Green Rise Foods 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 Green Rise Foods will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Green Rise Foods' earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Green Rise Foods?

Green Rise Foods' 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.

Taking a look back first, we see that the company managed to grow revenues by a handy 9.0% last year. This was backed up an excellent period prior to see revenue up by 64% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 4.8% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Green Rise Foods is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

Green Rise Foods' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We didn't quite envision Green Rise Foods' P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. 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. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

Before you take the next step, you should know about the 2 warning signs for Green Rise Foods (1 is concerning!) that we have uncovered.

If these risks are making you reconsider your opinion on Green Rise Foods, 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.