Revenues Not Telling The Story For Trulieve Cannabis Corp. (CSE:TRUL) After Shares Rise 28%

Trulieve Cannabis Corp. (CSE:TRUL) shares have continued their recent momentum with a 28% gain in the last month alone. But the last month did very little to improve the 53% share price decline over the last year.

Although its price has surged higher, it's still not a stretch to say that Trulieve Cannabis' price-to-sales (or "P/S") ratio of 0.8x right now seems quite "middle-of-the-road" compared to the Pharmaceuticals industry in Canada, where the median P/S ratio is around 0.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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Check out our latest analysis for Trulieve Cannabis

What Does Trulieve Cannabis' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Trulieve Cannabis has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Trulieve Cannabis' future stacks up against the industry? In that case, our free report is a great place to start.

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 Trulieve Cannabis' to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.9% last year. The solid recent performance means it was also able to grow revenue by 13% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 1.6% per year as estimated by the nine analysts watching the company. That's shaping up to be materially lower than the 5.8% each year growth forecast for the broader industry.

In light of this, it's curious that Trulieve Cannabis' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Trulieve Cannabis' P/S?

Trulieve Cannabis appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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 look at the analysts forecasts of Trulieve Cannabis' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Plus, you should also learn about this 1 warning sign we've spotted with Trulieve Cannabis.

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.