Village Farms International, Inc.'s (NASDAQ:VFF) Shares Climb 39% But Its Business Is Yet to Catch Up

Despite an already strong run, Village Farms International, Inc. (NASDAQ:VFF) shares have been powering on, with a gain of 39% in the last thirty days. This latest share price bounce rounds out a remarkable 307% gain over the last twelve months.

Although its price has surged higher, it's still not a stretch to say that Village Farms International's price-to-sales (or "P/S") ratio of 1.2x right now seems quite "middle-of-the-road" compared to the Food industry in the United States, where the median P/S ratio is around 0.9x. 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.

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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. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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Is There Some Revenue Growth Forecasted For Village Farms International?

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

Taking a look back first, we see that the company grew revenue by an impressive 42% last year. As a result, it also grew revenue by 14% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the two analysts covering the company suggest revenue growth is heading into negative territory, declining 3.7% per year over the next three years. With the industry predicted to deliver 2.7% growth per annum, that's a disappointing outcome.

In light of this, it's somewhat alarming that Village Farms International's P/S sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Bottom Line On Village Farms International's P/S

Its shares have lifted substantially and now Village Farms International's P/S is back within range of the industry median. 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.

Our check of Village Farms International's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Village Farms International that you need to be mindful of.

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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.