Cautious Investors Not Rewarding Decibel Cannabis Company Inc.'s (CVE:DB) Performance Completely

There wouldn't be many who think Decibel Cannabis Company Inc.'s (CVE:DB) price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S for the Pharmaceuticals industry in Canada is similar at about 0.9x. 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.

Check out our latest analysis for Decibel Cannabis

How Has Decibel Cannabis Performed Recently?

Decibel Cannabis certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Decibel Cannabis.

Is There Some Revenue Growth Forecasted For Decibel Cannabis?

The only time you'd be comfortable seeing a P/S like Decibel Cannabis' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 59% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 24% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 14% per year, which is noticeably less attractive.

In light of this, it's curious that Decibel Cannabis' P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Decibel Cannabis' P/S?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Looking at Decibel Cannabis' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Decibel Cannabis that you need to be mindful of.

If you're unsure about the strength of Decibel Cannabis' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.