Planet 13 Holdings Inc.'s (CSE:PLTH) P/S Is Still On The Mark Following 75% Share Price Bounce

Planet 13 Holdings Inc. (CSE:PLTH) shareholders would be excited to see that the share price has had a great month, posting a 75% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 35% in the last twelve months.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Planet 13 Holdings' P/S ratio of 1x, since the median price-to-sales (or "P/S") ratio for the Pharmaceuticals industry in Canada is about the same. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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See our latest analysis for Planet 13 Holdings

How Planet 13 Holdings Has Been Performing

With revenue growth that's superior to most other companies of late, Planet 13 Holdings has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Want the full picture on analyst estimates for the company? Then our free report on Planet 13 Holdings will help you uncover what's on the horizon.

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

There's an inherent assumption that a company should be matching the industry for P/S ratios like Planet 13 Holdings' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 26% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 5.7% each year during the coming three years according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 5.3% per year, which is not materially different.

In light of this, it's understandable that Planet 13 Holdings' P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

Planet 13 Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look at Planet 13 Holdings' revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

Before you settle on your opinion, we've discovered 3 warning signs for Planet 13 Holdings that you should be aware of.

If these risks are making you reconsider your opinion on Planet 13 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.