Avant Brands Inc. (TSE:AVNT) Stock's 30% Dive Might Signal An Opportunity But It Requires Some Scrutiny

Avant Brands Inc. (TSE:AVNT) shareholders that were waiting for something to happen have been dealt a blow with a 30% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 52% loss during that time.

Although its price has dipped substantially, it's still not a stretch to say that Avant Brands' 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 1.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Avant Brands

What Does Avant Brands' Recent Performance Look Like?

Avant Brands certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

Avant Brands' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered an exceptional 102% gain to the company's top line. 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.

Comparing that to the industry, which is only predicted to deliver 4.5% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it interesting that Avant Brands is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On Avant Brands' P/S

With its share price dropping off a cliff, the P/S for Avant Brands looks to be in line with the rest of the Pharmaceuticals 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 didn't quite envision Avant Brands' P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

Having said that, be aware Avant Brands is showing 2 warning signs in our investment analysis, you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.