Why Investors Shouldn't Be Surprised By iAnthus Capital Holdings, Inc.'s (CSE:IAN) 50% Share Price Plunge

iAnthus Capital Holdings, Inc. (CSE:IAN) shares have had a horrible month, losing 50% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 80% share price decline.

Following the heavy fall in price, it would 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 0.2x, considering almost half the companies in Canada's Pharmaceuticals industry have P/S ratios above 0.7x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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View our latest analysis for iAnthus Capital Holdings

How iAnthus Capital Holdings Has Been Performing

It looks like revenue growth has deserted iAnthus Capital Holdings recently, which is not something to boast about. One possibility is that the P/S is low because investors think this benign revenue growth rate will likely underperform the broader industry in the near future. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

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.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as iAnthus Capital Holdings' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 15% drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 21% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's understandable that iAnthus Capital Holdings' P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. 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. 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.

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. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. 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 should always think about risks. Case in point, we've spotted 5 warning signs for iAnthus Capital Holdings you should be aware of, and 3 of them shouldn't be ignored.

If these risks are making you reconsider your opinion on iAnthus Capital Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.