1933 Industries Inc. (CSE:TGIF) Might Not Be As Mispriced As It Looks After Plunging 50%

The 1933 Industries Inc. (CSE:TGIF) share price has fared very poorly over the last month, falling by a substantial 50%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 75% loss during that time.

After such a large drop in price, it would be understandable if you think 1933 Industries 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 1.1x. 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 1933 Industries

How 1933 Industries Has Been Performing

Revenue has risen firmly for 1933 Industries recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. 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 1933 Industries' earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For 1933 Industries?

In order to justify its P/S ratio, 1933 Industries would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 26% last year. The strong recent performance means it was also able to grow revenue by 69% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 9.5% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that 1933 Industries' P/S isn't as high compared to that of its industry peers. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

The southerly movements of 1933 Industries' shares means its P/S is now sitting at a pretty low level. 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.

We're very surprised to see 1933 Industries currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. 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.

And what about other risks? Every company has them, and we've spotted 4 warning signs for 1933 Industries (of which 3 don't sit too well with us!) 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.