Investors Still Aren't Entirely Convinced By Goodness Growth Holdings, Inc.'s (CSE:GDNS) Revenues Despite 59% Price Jump

Goodness Growth Holdings, Inc. (CSE:GDNS) shares have continued their recent momentum with a 59% gain in the last month alone. The annual gain comes to 113% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, it's still not a stretch to say that Goodness Growth Holdings' price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the Pharmaceuticals industry in Canada, where the median P/S ratio is around 1x. 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.

View our latest analysis for Goodness Growth Holdings

How Goodness Growth Holdings Has Been Performing

Goodness Growth Holdings certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Goodness Growth Holdings.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Goodness Growth Holdings' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 20% last year. Pleasingly, revenue has also lifted 74% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 19% as estimated by the one analyst watching the company. With the industry only predicted to deliver 4.6%, the company is positioned for a stronger revenue result.

In light of this, it's curious that Goodness Growth Holdings' P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Goodness Growth Holdings' P/S

Its shares have lifted substantially and now Goodness Growth Holdings' P/S is back within range of the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Despite enticing revenue growth figures that outpace the industry, Goodness Growth Holdings' P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

You need to take note of risks, for example - Goodness Growth Holdings has 6 warning signs (and 3 which don't sit too well with us) we think you should know about.

If you're unsure about the strength of Goodness Growth Holdings' 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.