A Piece Of The Puzzle Missing From IM Cannabis Corp.'s (CSE:IMCC) Share Price

When you see that almost half of the companies in the Pharmaceuticals industry in Canada have price-to-sales ratios (or "P/S") above 1.2x, IM Cannabis Corp. (CSE:IMCC) looks to be giving off some buy signals with its 0.2x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for IM Cannabis

What Does IM Cannabis' Recent Performance Look Like?

While the industry has experienced revenue growth lately, IM Cannabis' revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still 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.

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

How Is IM Cannabis' Revenue Growth Trending?

In order to justify its P/S ratio, IM Cannabis would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 10%. Still, the latest three year period has seen an excellent 107% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Looking ahead now, revenue is anticipated to climb by 16% during the coming year according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 6.6%, which is noticeably less attractive.

With this information, we find it odd that IM Cannabis is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From IM Cannabis' P/S?

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.

To us, it seems IM Cannabis currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Plus, you should also learn about these 3 warning signs we've spotted with IM Cannabis (including 2 which are potentially serious).

If you're unsure about the strength of IM Cannabis' 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.

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