Ayr Wellness Inc.'s (CSE:AYR.A) Shares Not Telling The Full Story

Ayr Wellness Inc.'s (CSE:AYR.A) price-to-sales (or "P/S") ratio of 0.5x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Pharmaceuticals industry in Canada have P/S ratios greater than 1.2x. 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 Ayr Wellness

What Does Ayr Wellness' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Ayr Wellness' revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor 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.

Keen to find out how analysts think Ayr Wellness' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Ayr Wellness' Revenue Growth Trending?

In order to justify its P/S ratio, Ayr Wellness would need to produce sluggish growth that's trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.1%. Even so, admirably revenue has lifted 158% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 7.3% per year over the next three years. That's shaping up to be similar to the 8.3% each year growth forecast for the broader industry.

With this information, we find it odd that Ayr Wellness is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can achieve future growth expectations.

What Does Ayr Wellness' P/S Mean For Investors?

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've seen that Ayr Wellness currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

It is also worth noting that we have found 3 warning signs for Ayr Wellness (1 shouldn't be ignored!) 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.