Market Participants Recognise 22nd Century Group, Inc.'s (NASDAQ:XXII) Revenues Pushing Shares 1,233% Higher

The 22nd Century Group, Inc. (NASDAQ:XXII) share price has done very well over the last month, posting an excellent gain of 1,233%. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 82% share price drop in the last twelve months.

Following the firm bounce in price, when almost half of the companies in the United States' Tobacco industry have price-to-sales ratios (or "P/S") below 1.7x, you may consider 22nd Century Group as a stock not worth researching with its 4.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for 22nd Century Group

What Does 22nd Century Group's Recent Performance Look Like?

22nd Century Group has been doing a reasonable job lately as its revenue hasn't declined as much as most other companies. It seems that many are expecting the comparatively superior revenue performance to persist, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price, especially if revenue continues to dissolve.

Want the full picture on analyst estimates for the company? Then our free report on 22nd Century Group will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For 22nd Century Group?

In order to justify its P/S ratio, 22nd Century Group would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 22% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 22% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 54% over the next year. With the industry only predicted to deliver 3.9%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why 22nd Century Group's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Shares in 22nd Century Group have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

Our look into 22nd Century Group shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 5 warning signs we've spotted with 22nd Century Group (including 4 which shouldn't be ignored).

If these risks are making you reconsider your opinion on 22nd Century Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.