The Market Lifts 1CM Inc. (CSE:EPIC) Shares 44% But It Can Do More

Despite an already strong run, 1CM Inc. (CSE:EPIC) shares have been powering on, with a gain of 44% in the last thirty days. The last 30 days bring the annual gain to a very sharp 26%.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about 1CM's P/S ratio of 0.7x, since the median price-to-sales (or "P/S") ratio for the Pharmaceuticals industry in Canada is also close to 1.1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Check out our latest analysis for 1CM

What Does 1CM's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, 1CM has been doing very well. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. Those who are bullish on 1CM will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for 1CM, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like 1CM's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 35% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 14%, the most recent medium-term revenue trajectory is noticeably more alluring

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.

What We Can Learn From 1CM's P/S?

Its shares have lifted substantially and now 1CM's P/S is back within range of the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

To our surprise, 1CM revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for 1CM you should be aware of, and 1 of them can't be ignored.

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.