Slammed 30% Rubicon Organics Inc. (CVE:ROMJ) Screens Well Here But There Might Be A Catch

Rubicon Organics Inc. (CVE:ROMJ) shareholders won't be pleased to see that the share price has had a very rough month, dropping 30% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 20% in that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Rubicon Organics' P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Pharmaceuticals industry in Canada is also close to 0.8x. 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.

View our latest analysis for Rubicon Organics

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

With revenue growth that's inferior to most other companies of late, Rubicon Organics has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. 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?

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

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. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 13% as estimated by the lone analyst watching the company. With the industry only predicted to deliver 10%, the company is positioned for a stronger revenue result.

In light of this, it's curious that Rubicon Organics' 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 Rubicon Organics' P/S?

With its share price dropping off a cliff, the P/S for Rubicon Organics looks to be in line with the rest of the Pharmaceuticals industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Looking at Rubicon Organics' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Before you settle on your opinion, we've discovered 2 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.