Shareholders Should Be Pleased With Avicanna Inc.'s (TSE:AVCN) Price

Avicanna Inc.'s (TSE:AVCN) price-to-sales (or "P/S") ratio of 2.5x may not look like an appealing investment opportunity when you consider close to half the companies in the Pharmaceuticals industry in Canada have P/S ratios below 1.4x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Avicanna

How Has Avicanna Performed Recently?

With revenue growth that's exceedingly strong of late, Avicanna has been doing very well. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Avicanna will help you shine a light on its historical performance.

How Is Avicanna's Revenue Growth Trending?

Avicanna's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

When compared to the industry's one-year growth forecast of 5.3%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we can see why Avicanna is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What Does Avicanna's P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It's no surprise that Avicanna can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Avicanna (1 can't be ignored) you should be aware of.

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.