Ayr Wellness Inc.'s (CSE:AYR.A) Share Price Boosted 33% But Its Business Prospects Need A Lift Too

Despite an already strong run, Ayr Wellness Inc. (CSE:AYR.A) shares have been powering on, with a gain of 33% in the last thirty days. But the last month did very little to improve the 68% share price decline over the last year.

Although its price has surged higher, Ayr Wellness may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.2x, considering almost half of all companies in the Pharmaceuticals industry in Canada have P/S ratios greater than 0.9x and even P/S higher than 3x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Ayr Wellness

How Ayr Wellness Has Been Performing

Ayr Wellness could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. 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 Ayr Wellness.

Is There Any Revenue Growth Forecasted For Ayr Wellness?

Ayr Wellness' 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 23%. Pleasingly, revenue has also lifted 297% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 6.8% per annum during the coming three years according to the eight analysts following the company. With the industry predicted to deliver 11% growth per year, the company is positioned for a weaker revenue result.

With this information, we can see why Ayr Wellness is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Ayr Wellness' P/S

Ayr Wellness' stock price has surged recently, but its but its P/S still remains modest. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Ayr Wellness' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Ayr Wellness is showing 3 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Ayr Wellness, 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.