Benign Growth For iAnthus Capital Holdings, Inc. (CSE:IAN) Underpins Stock's 40% Plummet

iAnthus Capital Holdings, Inc. (CSE:IAN) shareholders that were waiting for something to happen have been dealt a blow with a 40% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 25% in that time.

Since its price has dipped substantially, considering around half the companies operating in Canada's Pharmaceuticals industry have price-to-sales ratios (or "P/S") above 1.1x, you may consider iAnthus Capital Holdings as an solid investment opportunity with its 0.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for iAnthus Capital Holdings

How iAnthus Capital Holdings Has Been Performing

The recent revenue growth at iAnthus Capital Holdings would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. 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 out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on iAnthus Capital Holdings will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

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

If we review the last year of revenue growth, the company posted a worthy increase of 4.3%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 5.7% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 6.3% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this information, we are not surprised that iAnthus Capital Holdings is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

What Does iAnthus Capital Holdings' P/S Mean For Investors?

iAnthus Capital Holdings' recently weak share price has pulled its P/S back below other Pharmaceuticals companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of iAnthus Capital Holdings confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

You need to take note of risks, for example - iAnthus Capital Holdings has 4 warning signs (and 2 which shouldn't be ignored) we think you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com