Aurora Cannabis Inc. (TSE:ACB) Stocks Pounded By 28% But Not Lagging Industry On Growth Or Pricing

Aurora Cannabis Inc. (TSE:ACB) shares have retraced a considerable 28% in the last month, reversing a fair amount of their solid recent performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 12% share price drop.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Aurora Cannabis' P/S ratio of 1x, since the median price-to-sales (or "P/S") ratio for the Pharmaceuticals industry in Canada is also close to 0.9x. 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 Aurora Cannabis

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

Recent times have been advantageous for Aurora Cannabis as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Keen to find out how analysts think Aurora 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?

The only time you'd be comfortable seeing a P/S like Aurora Cannabis' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 74% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 6.7% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 5.6% per year, which is not materially different.

With this in mind, it makes sense that Aurora Cannabis' P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

Following Aurora Cannabis' share price tumble, its P/S is just clinging on to the industry median P/S. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at Aurora Cannabis' revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Aurora Cannabis with six simple checks.

If these risks are making you reconsider your opinion on Aurora Cannabis, 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.