Ascend Wellness Holdings, Inc. (CSE:AAWH.U) Might Not Be As Mispriced As It Looks After Plunging 35%

To the annoyance of some shareholders, Ascend Wellness Holdings, Inc. (CSE:AAWH.U) shares are down a considerable 35% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 69% loss during that time.

Since its price has dipped substantially, when close to half the companies operating in Canada's Personal Products industry have price-to-sales ratios (or "P/S") above 2.1x, you may consider Ascend Wellness Holdings as an enticing stock to check out with its 0.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Ascend Wellness Holdings

What Does Ascend Wellness Holdings' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Ascend Wellness Holdings has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

Ascend Wellness Holdings' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 15%. The strong recent performance means it was also able to grow revenue by 90% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 3.1% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 4.1% per year, which is not materially different.

In light of this, it's peculiar that Ascend Wellness Holdings' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What We Can Learn From Ascend Wellness Holdings' P/S?

Ascend Wellness Holdings' recently weak share price has pulled its P/S back below other Personal Products companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've seen that Ascend Wellness Holdings currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

It is also worth noting that we have found 4 warning signs for Ascend Wellness Holdings that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.