The Market Lifts Avant Brands Inc. (TSE:AVNT) Shares 52% But It Can Do More
Avant Brands Inc. (TSE:AVNT) shareholders would be excited to see that the share price has had a great month, posting a 52% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 81%.
In spite of the firm bounce in price, given about half the companies operating in Canada's Pharmaceuticals industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Avant Brands as an attractive investment with its 0.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
Check out our latest analysis for Avant Brands
How Has Avant Brands Performed Recently?
Revenue has risen firmly for Avant Brands recently, which is pleasing to see. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If you 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.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Avant Brands' earnings, revenue and cash flow.Do Revenue Forecasts Match The Low P/S Ratio?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Avant Brands' to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 26% last year. The strong recent performance means it was also able to grow revenue by 157% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 14% shows it's noticeably more attractive.
In light of this, it's peculiar that Avant Brands' P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.
What We Can Learn From Avant Brands' P/S?
Despite Avant Brands' share price climbing recently, its P/S still lags most other companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
We're very surprised to see Avant Brands currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.
Plus, you should also learn about these 2 warning signs we've spotted with Avant Brands.
If you're unsure about the strength of Avant Brands' 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.