Investors Still Aren't Entirely Convinced By StateHouse Holdings Inc.'s (CSE:STHZ) Revenues Despite 40% Price Jump

The StateHouse Holdings Inc. (CSE:STHZ) share price has done very well over the last month, posting an excellent gain of 40%. The last 30 days bring the annual gain to a very sharp 40%.

Even after such a large jump in price, it would still be understandable if you think StateHouse Holdings is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.1x, considering almost half the companies in Canada's Pharmaceuticals industry have P/S ratios above 1.2x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for StateHouse Holdings

How Has StateHouse Holdings Performed Recently?

For instance, StateHouse Holdings' receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, 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.

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 StateHouse Holdings' earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered a frustrating 12% decrease to the company's top line. Even so, admirably revenue has lifted 72% in aggregate from three years ago, notwithstanding the last 12 months. 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.

This is in contrast to the rest of the industry, which is expected to grow by 8.6% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that StateHouse Holdings is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From StateHouse Holdings' P/S?

StateHouse Holdings' stock price has surged recently, but its but its P/S still remains modest. 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 StateHouse Holdings revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Plus, you should also learn about these 5 warning signs we've spotted with StateHouse Holdings.

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.