Market Cool On Green Rise Foods Inc.’s (CVE:GRF) Revenues Pushing Shares 31% Lower

Green Rise Foods Inc. (CVE:GRF) shareholders that were waiting for something to happen have been dealt a blow with a 31% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 54% share price decline.

Even after such a large drop in price, there still wouldn’t be many who think Green Rise Foods’ price-to-sales (or “P/S”) ratio of 0.4x is worth a mention when the median P/S in Canada’s Food industry is similar at about 0.7x. 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.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part – they are all under $10bn in marketcap – there is still time to get in early.

View our latest analysis for Green Rise Foods

How Green Rise Foods Has Been Performing

Revenue has risen at a steady rate over the last year for Green Rise Foods, which is generally not a bad outcome. One possibility is that the P/S is moderate because investors think this good revenue growth might only be parallel to the broader industry in the near future. If not, then at least existing shareholders probably aren’t too pessimistic about the future direction of the share price.

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 Green Rise Foods’ earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

There’s an inherent assumption that a company should be matching the industry for P/S ratios like Green Rise Foods’ to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.6% last year. This was backed up an excellent period prior to see revenue up by 60% in total over the last three years. Therefore, it’s fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 0.5% growth in the next 12 months, the company’s momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it’s curious that Green Rise Foods’ P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

What Does Green Rise Foods’ P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for Green Rise Foods looks to be in line with the rest of the Food industry. 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.

We didn’t quite envision Green Rise Foods’ P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. When we see strong revenue with faster-than-industry growth, we can only assume potential risks are what might be placing pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

You should always think about risks. Case in point, we’ve spotted 2 warning signs for Green Rise Foods you should be aware of, and 1 of them is significant.

If you’re unsure about the strength of Green Rise Foods’ business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.