Why We're Not Concerned Yet About Grown Rogue International Inc.'s (CSE:GRIN) 31% Share Price Plunge

To the annoyance of some shareholders, Grown Rogue International Inc. (CSE:GRIN) shares are down a considerable 31% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 17% in that time.

Although its price has dipped substantially, you could still be forgiven for thinking Grown Rogue International is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 3.4x, considering almost half the companies in Canada's Pharmaceuticals industry have P/S ratios below 0.7x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Grown Rogue International

What Does Grown Rogue International's P/S Mean For Shareholders?

Revenue has risen firmly for Grown Rogue International recently, which is pleasing to see. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 Grown Rogue International's earnings, revenue and cash flow.

How Is Grown Rogue International's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Grown Rogue International's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 24% last year. The latest three year period has also seen an excellent 124% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 8.4% shows it's noticeably more attractive.

With this in consideration, it's not hard to understand why Grown Rogue International's P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Bottom Line On Grown Rogue International's P/S

Grown Rogue International's shares may have suffered, but its P/S remains high. 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.

It's no surprise that Grown Rogue International can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Grown Rogue International that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.