Potential Upside For Christina Lake Cannabis Corp. (CSE:CLC) Not Without Risk

When you see that almost half of the companies in the Pharmaceuticals industry in Canada have price-to-sales ratios (or "P/S") above 1.1x, Christina Lake Cannabis Corp. (CSE:CLC) looks to be giving off some buy signals with its 0.6x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Christina Lake Cannabis

What Does Christina Lake Cannabis' P/S Mean For Shareholders?

The revenue growth achieved at Christina Lake Cannabis over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Although there are no analyst estimates available for Christina Lake Cannabis, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Christina Lake Cannabis' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Christina Lake Cannabis' is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company grew revenue by an impressive 27% last year. The strong recent performance means it was also able to grow revenue by 120% 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.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 17% shows it's noticeably more attractive.

With this information, we find it odd that Christina Lake Cannabis is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

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.

We're very surprised to see Christina Lake Cannabis 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 robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Christina Lake Cannabis (2 are concerning) you should be aware of.

If you're unsure about the strength of Christina Lake Cannabis' 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.