Investors Aren't Buying Flora Growth Corp.'s (NASDAQ:FLGC) Revenues

Flora Growth Corp.'s (NASDAQ:FLGC) price-to-sales (or "P/S") ratio of 0.3x might make it look like a buy right now compared to the Personal Products industry in the United States, where around half of the companies have P/S ratios above 1.2x and even P/S above 4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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Check out our latest analysis for Flora Growth

What Does Flora Growth's P/S Mean For Shareholders?

Flora Growth could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

How Is Flora Growth's Revenue Growth Trending?

In order to justify its P/S ratio, Flora Growth would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 29%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, despite the drawbacks experienced in the last 12 months. Accordingly, shareholders will be pleased, but also have some serious questions to ponder about the last 12 months.

Shifting to the future, estimates from the sole analyst covering the company suggest revenue growth is heading into negative territory, declining 2.8% over the next year. Meanwhile, the broader industry is forecast to expand by 3.8%, which paints a poor picture.

In light of this, it's understandable that Flora Growth's P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Flora Growth's P/S is on the lower end of the spectrum. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - Flora Growth has 4 warning signs (and 1 which is significant) we think you should know about.

If you're unsure about the strength of Flora Growth's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.