Risks Still Elevated At These Prices As Shiny Health & Wellness Corp. (CVE:SNYB) Shares Dive 28%

To the annoyance of some shareholders, Shiny Health & Wellness Corp. (CVE:SNYB) shares are down a considerable 28% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 80% share price decline.

In spite of the heavy fall in price, there still wouldn't be many who think Shiny Health & Wellness' price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in Canada's Specialty Retail industry is similar at about 0.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Shiny Health & Wellness

What Does Shiny Health & Wellness' P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, Shiny Health & Wellness has been doing very well. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. Those who are bullish on Shiny Health & Wellness will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

How Is Shiny Health & Wellness' Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 41% gain to the company's top line. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 14% shows it's noticeably less attractive.

With this in mind, we find it intriguing that Shiny Health & Wellness' P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From Shiny Health & Wellness' P/S?

With its share price dropping off a cliff, the P/S for Shiny Health & Wellness looks to be in line with the rest of the Specialty Retail industry. 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.

Our examination of Shiny Health & Wellness revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

You always need to take note of risks, for example - Shiny Health & Wellness has 1 warning sign we think you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.