Investors Give Aurora Cannabis Inc. (TSE:ACB) Shares A 26% Hiding

Unfortunately for some shareholders, the Aurora Cannabis Inc. (TSE:ACB) share price has dived 26% in the last thirty days, prolonging recent pain. The recent drop has obliterated the annual return, with the share price now down 4.9% over that longer period.

Although its price has dipped substantially, it's still not a stretch to say that Aurora Cannabis' price-to-sales (or "P/S") ratio of 0.9x 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. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Aurora Cannabis

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

Aurora Cannabis' revenue growth of late has been pretty similar to most other companies. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. If this is the case, then at least existing shareholders won't be losing sleep over the current 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.

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.

Retrospectively, the last year delivered a decent 13% gain to the company's revenues. Revenue has also lifted 25% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 12% per annum during the coming three years according to the six analysts following the company. That's shaping up to be materially higher than the 8.3% each year growth forecast for the broader industry.

With this in consideration, we find it intriguing that Aurora Cannabis' P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Aurora Cannabis' plummeting stock price has brought its P/S back to a similar region as the rest of 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.

We've established that Aurora Cannabis currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Aurora Cannabis that you should be aware of.

If you're unsure about the strength of Aurora Cannabis' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.