Investors Still Aren't Entirely Convinced By Rubicon Organics Inc.'s (CVE:ROMJ) Revenues Despite 37% Price Jump

Rubicon Organics Inc. (CVE:ROMJ) shareholders would be excited to see that the share price has had a great month, posting a 37% gain and recovering from prior weakness. Looking further back, the 21% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, there still wouldn't be many who think Rubicon Organics' price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S in Canada's Pharmaceuticals industry is similar at about 0.8x. 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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View our latest analysis for Rubicon Organics

What Does Rubicon Organics' P/S Mean For Shareholders?

Recent times haven't been great for Rubicon Organics as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Rubicon Organics' Revenue Growth Trending?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 8.2% last year. Pleasingly, revenue has also lifted 116% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 13% during the coming year according to the sole analyst following the company. With the industry only predicted to deliver 8.8%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Rubicon Organics' P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Rubicon Organics' stock has a lot of momentum behind it lately, which has brought its P/S level with 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.

Despite enticing revenue growth figures that outpace the industry, Rubicon Organics' P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Before you settle on your opinion, we've discovered 3 warning signs for Rubicon Organics that 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.