Take Care Before Jumping Onto High Tide Inc. (CVE:HITI) Even Though It's 25% Cheaper

To the annoyance of some shareholders, High Tide Inc. (CVE:HITI) shares are down a considerable 25% in the last month, which continues a horrid run for the company. The last month has meant the stock is now only up 3.4% during the last year.

Even after such a large drop in price, there still wouldn't be many who think High Tide's price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in Canada's Pharmaceuticals industry is similar at about 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for High Tide

How Has High Tide Performed Recently?

With revenue growth that's inferior to most other companies of late, High Tide has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

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

There's an inherent assumption that a company should be matching the industry for P/S ratios like High Tide's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.8% last year. This was backed up an excellent period prior to see revenue up by 150% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 13% each year during the coming three years according to the five analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 7.2% per annum, which is noticeably less attractive.

With this information, we find it interesting that High Tide is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

With its share price dropping off a cliff, the P/S for High Tide looks to be in line with the rest of the Pharmaceuticals industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that High Tide currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Before you settle on your opinion, we've discovered 1 warning sign for High Tide that you should be aware of.

If you're unsure about the strength of High Tide's 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.