Village Farms International, Inc.'s (NASDAQ:VFF) 28% Price Boost Is Out Of Tune With Revenues

Village Farms International, Inc. (NASDAQ:VFF) shareholders have had their patience rewarded with a 28% share price jump in the last month. This latest share price bounce rounds out a remarkable 403% gain over the last twelve months.

Since its price has surged higher, given close to half the companies operating in the United States' Food industry have price-to-sales ratios (or "P/S") below 0.7x, you may consider Village Farms International as a stock to potentially avoid with its 1.3x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Village Farms International

What Does Village Farms International's Recent Performance Look Like?

Village Farms International certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Village Farms International's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Village Farms International?

In order to justify its P/S ratio, Village Farms International would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 57% last year. As a result, it also grew revenue by 19% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the three analysts covering the company suggest revenue growth is heading into negative territory, declining 1.5% per annum over the next three years. That's not great when the rest of the industry is expected to grow by 2.3% per annum.

In light of this, it's alarming that Village Farms International's P/S sits above the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Key Takeaway

Village Farms International's P/S is on the rise since its shares have risen strongly. 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.

We've established that Village Farms International currently trades on a much higher than expected P/S for a company whose revenues are forecast to decline. Right now we aren't comfortable with the high P/S as the predicted future revenue decline likely to impact the positive sentiment that's propping up the P/S. Unless these conditions improve markedly, it'll be a challenging time for shareholders.

You always need to take note of risks, for example - Village Farms International has 2 warning signs we think 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.