TerrAscend Corp. (TSE:TSND) Shares May Have Slumped 30% But Getting In Cheap Is Still Unlikely

The TerrAscend Corp. (TSE:TSND) share price has fared very poorly over the last month, falling by a substantial 30%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 79% loss during that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about TerrAscend's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Pharmaceuticals industry in Canada is also close to 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Our free stock report includes 3 warning signs investors should be aware of before investing in TerrAscend. Read for free now.

Check out our latest analysis for TerrAscend

How Has TerrAscend Performed Recently?

TerrAscend hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think TerrAscend's future stacks up against the industry? In that case, our free report is a great place to start.

How Is TerrAscend's Revenue Growth Trending?

In order to justify its P/S ratio, TerrAscend would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 3.4%. Still, the latest three year period has seen an excellent 58% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Looking ahead now, revenue is anticipated to climb by 4.7% per year during the coming three years according to the five analysts following the company. With the industry predicted to deliver 7.1% growth each year, the company is positioned for a weaker revenue result.

With this information, we find it interesting that TerrAscend is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On TerrAscend's P/S

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

When you consider that TerrAscend's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

You should always think about risks. Case in point, we've spotted 3 warning signs for TerrAscend 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.