GreenFirst Forest Products Inc. (TSE:GFP) Shares Slammed 26% But Getting In Cheap Might Be Difficult Regardless

To the annoyance of some shareholders, GreenFirst Forest Products Inc. (TSE:GFP) shares are down a considerable 26% 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 74% loss during that time.

Even after such a large drop in price, it's still not a stretch to say that GreenFirst Forest Products' price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Forestry industry in Canada, where the median P/S ratio is around 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for GreenFirst Forest Products

What Does GreenFirst Forest Products' P/S Mean For Shareholders?

For instance, GreenFirst Forest Products' receding revenue in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is GreenFirst Forest Products' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like GreenFirst Forest Products' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 14% decrease to the company's top line. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 1.9% shows it's about the same on an annualised basis.

In light of this, it's understandable that GreenFirst Forest Products' P/S sits in line with the majority of other companies. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

What Does GreenFirst Forest Products' P/S Mean For Investors?

Following GreenFirst Forest Products' share price tumble, its P/S is just clinging on to the industry median P/S. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It appears to us that GreenFirst Forest Products maintains its moderate P/S off the back of its recent three-year growth being in line with the wider industry forecast. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. 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.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for GreenFirst Forest Products (2 are significant) you should be aware of.

If you're unsure about the strength of GreenFirst Forest Products' 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.

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