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

Aurora Cannabis Inc. (TSE:ACB) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. Longer-term shareholders would now have taken a real hit with the stock declining 4.4% in the last year.

In spite of the heavy fall in price, there still wouldn't be many who think Aurora Cannabis' price-to-sales (or "P/S") ratio of 1.1x is worth a mention when the median P/S in Canada's Pharmaceuticals industry is similar at about 0.8x. 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

How Has Aurora Cannabis Performed Recently?

Aurora Cannabis certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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.

How Is Aurora Cannabis' Revenue Growth Trending?

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.

If we review the last year of revenue growth, the company posted a worthy increase of 13%. The solid recent performance means it was also able to grow revenue by 25% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 11% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 10% 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. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

Following Aurora Cannabis' share price tumble, its P/S is just clinging on to the industry median P/S. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've seen that Aurora Cannabis maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

You always need to take note of risks, for example - Aurora Cannabis has 2 warning signs we think you should be aware of.

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.

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

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.