StateHouse Holdings Inc.'s (CSE:STHZ) Shares Leap 200% Yet They're Still Not Telling The Full Story

StateHouse Holdings Inc. (CSE:STHZ) shares have had a really impressive month, gaining 200% after a shaky period beforehand. But the last month did very little to improve the 72% share price decline over the last year.

Although its price has surged higher, StateHouse Holdings may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.1x, since almost half of all companies in the Pharmaceuticals industry in Canada have P/S ratios greater than 0.9x and even P/S higher than 3x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for StateHouse Holdings

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

StateHouse Holdings certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on StateHouse Holdings will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

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.

Taking a look back first, we see that the company grew revenue by an impressive 78% last year. Pleasingly, revenue has also lifted 131% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 5.6% 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. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

The latest share price surge wasn't enough to lift StateHouse Holdings' P/S close to the industry median. 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.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for StateHouse Holdings (4 are potentially serious) you should be aware of.

If these risks are making you reconsider your opinion on StateHouse 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.