Slammed 42% StateHouse Holdings Inc. (CSE:STHZ) Screens Well Here But There Might Be A Catch

StateHouse Holdings Inc. (CSE:STHZ) shares have retraced a considerable 42% in the last month, reversing a fair amount of their solid recent performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 31% in that time.

Since its price has dipped substantially, it would 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 1.3x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for StateHouse Holdings

What Does StateHouse Holdings' P/S Mean For Shareholders?

Revenue has risen at a steady rate over the last year for StateHouse Holdings, which is generally not a bad outcome. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. Those who are bullish on StateHouse Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for StateHouse Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For StateHouse Holdings?

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

Retrospectively, the last year delivered a decent 3.3% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 72% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 4.9%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's peculiar that StateHouse Holdings' P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

StateHouse Holdings' P/S has taken a dip along with its share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

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. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

You need to take note of risks, for example - StateHouse Holdings has 5 warning signs (and 4 which are concerning) we think you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.