Auxly Cannabis Group Inc.'s (TSE:XLY) Shares Leap 60% Yet They're Still Not Telling The Full Story

Auxly Cannabis Group Inc. (TSE:XLY) shareholders are no doubt pleased to see that the share price has bounced 60% in the last month, although it is still struggling to make up recently lost ground. Looking back a bit further, it's encouraging to see the stock is up 100% in the last year.

Even after such a large jump in price, when close to half the companies operating in Canada's Pharmaceuticals industry have price-to-sales ratios (or "P/S") above 1.2x, you may still consider Auxly Cannabis Group as an enticing stock to check out with its 0.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Auxly Cannabis Group

How Auxly Cannabis Group Has Been Performing

Auxly Cannabis Group has been doing a decent job lately as it's been growing revenue at a reasonable pace. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. 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 out of favour.

Although there are no analyst estimates available for Auxly Cannabis Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Auxly Cannabis Group's Revenue Growth Trending?

Auxly Cannabis Group's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a decent 6.8% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 123% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 7.9% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Auxly Cannabis Group's P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

The latest share price surge wasn't enough to lift Auxly Cannabis Group's P/S close to the industry median. 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.

Our examination of Auxly Cannabis Group revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Auxly Cannabis Group (at least 1 which shouldn't be ignored), and understanding these should be part of your investment process.

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.