With a price-to-sales (or "P/S") ratio of 0.8x SNDL Inc. (NASDAQ:SNDL) may be sending very bullish signals at the moment, given that almost half of all the Pharmaceuticals companies in the United States have P/S ratios greater than 2.9x and even P/S higher than 15x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

How SNDL Has Been Performing

With revenue growth that's inferior to most other companies of late, SNDL has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

How Is SNDL's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as SNDL's is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Despite the lack of growth, the company was still able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it has slowed to such an extent.

Looking ahead now, revenue is anticipated to climb by 6.6% each year during the coming three years according to the two analysts following the company. That's shaping up to be materially lower than the 20% per year growth forecast for the broader industry.

In light of this, it's understandable that SNDL's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

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.

As we suspected, our examination of SNDL's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

You should always think about risks. Case in point, we've spotted 1 warning sign for SNDL you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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