Yerbaé Brands Corp. (CVE:YERB.U) Shares Slammed 56% But Getting In Cheap Might Be Difficult Regardless

Yerbaé Brands Corp. (CVE:YERB.U) shareholders that were waiting for something to happen have been dealt a blow with a 56% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 68% loss during that time.

In spite of the heavy fall in price, when almost half of the companies in Canada's Beverage industry have price-to-sales ratios (or "P/S") below 1.5x, you may still consider Yerbaé Brands as a stock probably not worth researching with its 2.5x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Yerbaé Brands

What Does Yerbaé Brands' Recent Performance Look Like?

Yerbaé Brands certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Yerbaé Brands.

What Are Revenue Growth Metrics Telling Us About The High P/S?

The only time you'd be truly comfortable seeing a P/S as high as Yerbaé Brands' is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that the company grew revenue by an impressive 88% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 17% drop in revenue in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 48% as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 4.2% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Yerbaé Brands' P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Yerbaé Brands' P/S

Despite the recent share price weakness, Yerbaé Brands' P/S remains higher than most other companies in the industry. 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.

We've established that Yerbaé Brands maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Beverage industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Yerbaé Brands (1 is a bit unpleasant!) that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.