Investors Still Aren't Entirely Convinced By Acreage Holdings, Inc.'s (CSE:ACRG.A.U) Revenues Despite 44% Price Jump

Acreage Holdings, Inc. (CSE:ACRG.A.U) shareholders are no doubt pleased to see that the share price has bounced 44% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 62% share price decline over the last year.

In spite of the firm bounce in price, Acreage Holdings may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.1x, since almost half of all companies in the Pharmaceuticals industry in Canada have P/S ratios greater than 1x and even P/S higher than 3x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Acreage Holdings

How Has Acreage Holdings Performed Recently?

The recent revenue growth at Acreage Holdings would have to be considered satisfactory if not spectacular. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. Those who are bullish on Acreage Holdings 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 Acreage Holdings' earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Acreage Holdings?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Acreage Holdings' to be considered reasonable.

Retrospectively, the last year delivered a decent 3.8% gain to the company's revenues. The latest three year period has also seen an excellent 146% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 5.4%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in mind, we find it intriguing that Acreage Holdings' P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

What Does Acreage Holdings' P/S Mean For Investors?

Despite Acreage Holdings' share price climbing recently, its P/S still lags most other companies. 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.

We're very surprised to see Acreage Holdings currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Acreage Holdings (3 are potentially serious!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.