Cronos Group Inc. (TSE:CRON) Stock Rockets 29% As Investors Are Less Pessimistic Than Expected
Cronos Group Inc. (TSE:CRON) shareholders have had their patience rewarded with a 29% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 64% in the last year.
Following the firm bounce in price, given around half the companies in Canada's Pharmaceuticals industry have price-to-sales ratios (or "P/S") below 1x, you may consider Cronos Group as a stock to avoid entirely with its 9.4x 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 so lofty.
See our latest analysis for Cronos Group
How Cronos Group Has Been Performing
With revenue growth that's superior to most other companies of late, Cronos Group has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.
Keen to find out how analysts think Cronos Group'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 Cronos Group?
There's an inherent assumption that a company should far outperform the industry for P/S ratios like Cronos Group's to be considered reasonable.
If we review the last year of revenue growth, the company posted a terrific increase of 19%. Pleasingly, revenue has also lifted 46% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 6.5% per annum during the coming three years according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 6.3% per year, which is not materially different.
In light of this, it's curious that Cronos Group's P/S sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.
The Key Takeaway
Cronos Group's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.
Given Cronos Group's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. A positive change is needed in order to justify the current price-to-sales ratio.
Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Cronos Group with six simple checks will allow you to discover any risks that could be an issue.
If you're unsure about the strength of Cronos Group'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.