iAnthus Capital Holdings, Inc.'s (CSE:IAN) 33% Dip In Price Shows Sentiment Is Matching Revenues

iAnthus Capital Holdings, Inc. (CSE:IAN) shares have had a horrible month, losing 33% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 100%, which is great even in a bull market.

Although its price has dipped substantially, it would still be understandable if you think iAnthus Capital Holdings is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.3x, considering almost half the companies in Canada's Pharmaceuticals industry have P/S ratios above 1x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for iAnthus Capital Holdings

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

For instance, iAnthus Capital Holdings' receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. 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.

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 iAnthus Capital Holdings' earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

iAnthus Capital Holdings' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 7.2% decrease to the company's top line. As a result, revenue from three years ago have also fallen 15% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 20% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we understand why iAnthus Capital Holdings' P/S is lower than most of its industry peers. 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 We Can Learn From iAnthus Capital Holdings' P/S?

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.

It is also worth noting that we have found 5 warning signs for iAnthus Capital Holdings (3 don't sit too well with us!) that you need to take into consideration.

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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.