Investors Give 1CM Inc. (CSE:EPIC) Shares A 48% Hiding

1CM Inc. (CSE:EPIC) shareholders won't be pleased to see that the share price has had a very rough month, dropping 48% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 83% share price decline.

In spite of the heavy fall in price, there still wouldn't be many who think 1CM's price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in Canada's Pharmaceuticals industry is similar at about 0.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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View our latest analysis for 1CM

What Does 1CM's P/S Mean For Shareholders?

1CM certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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 1CM's earnings, revenue and cash flow.

How Is 1CM's Revenue Growth Trending?

1CM's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company grew revenue by an impressive 55% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 8.5% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that 1CM's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

With its share price dropping off a cliff, the P/S for 1CM looks to be in line with the rest of the Pharmaceuticals industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that 1CM currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

We don't want to rain on the parade too much, but we did also find 2 warning signs for 1CM (1 is a bit unpleasant!) that you need to be mindful of.

If you're unsure about the strength of 1CM's 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.