Curaleaf Holdings, Inc. (TSE:CURA) Shares Slammed 25% But Getting In Cheap Might Be Difficult Regardless

Unfortunately for some shareholders, the Curaleaf Holdings, Inc. (TSE:CURA) share price has dived 25% in the last thirty days, prolonging recent pain. Longer-term, the stock has been solid despite a difficult 30 days, gaining 15% in the last year.

Although its price has dipped substantially, you could still be forgiven for thinking Curaleaf Holdings is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.7x, considering almost half the companies in Canada's Pharmaceuticals industry have P/S ratios below 1.2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Curaleaf Holdings

What Does Curaleaf Holdings' P/S Mean For Shareholders?

Curaleaf Holdings could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Curaleaf Holdings will help you uncover what's on the horizon.

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

In order to justify its P/S ratio, Curaleaf Holdings would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Although pleasingly revenue has lifted 38% in aggregate from three years ago, notwithstanding the last 12 months. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Looking ahead now, revenue is anticipated to climb by 13% per year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 11% per year growth forecast for the broader industry.

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

The Key Takeaway

There's still some elevation in Curaleaf Holdings' P/S, even if the same can't be said for its share price recently. 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.

Our look into Curaleaf Holdings shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Curaleaf Holdings you should know about.

If these risks are making you reconsider your opinion on Curaleaf Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.