Aurora Cannabis Inc.'s (TSE:ACB) Share Price Is Still Matching Investor Opinion Despite 29% Slump

Aurora Cannabis Inc. (TSE:ACB) shares have retraced a considerable 29% in the last month, reversing a fair amount of their solid recent performance. The recent drop has obliterated the annual return, with the share price now down 7.0% over that longer period.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Aurora Cannabis' P/S ratio of 1.3x, since the median price-to-sales (or "P/S") ratio for the Pharmaceuticals industry in Canada is also close to 1.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Aurora Cannabis

What Does Aurora Cannabis' Recent Performance Look Like?

Aurora Cannabis certainly has been doing a good job lately as it's been growing revenue more 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Aurora Cannabis.

Is There Some Revenue Growth Forecasted For Aurora Cannabis?

In order to justify its P/S ratio, Aurora Cannabis would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 21% last year. The latest three year period has also seen a 5.3% overall rise in revenue, aided extensively by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 11% per annum during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 9.3% per annum, which is not materially different.

In light of this, it's understandable that Aurora Cannabis' P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

With its share price dropping off a cliff, the P/S for Aurora Cannabis looks to be in line with the rest of the Pharmaceuticals industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've seen that Aurora Cannabis maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

You should always think about risks. Case in point, we've spotted 3 warning signs for Aurora Cannabis you should be aware of, and 2 of them don't sit too well with us.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com