You may think that with a price-to-sales (or "P/S") ratio of 1.8x Tilray Brands, Inc. (NASDAQ:TLRY) is a stock worth checking out, seeing as 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 12x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Has Tilray Brands Performed Recently?

Recent times have been advantageous for Tilray Brands as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Tilray Brands' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 25%. Pleasingly, revenue has also lifted 59% 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.

Turning to the outlook, the next three years should generate growth of 13% per year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 17% each year growth forecast for the broader industry.

With this in consideration, its clear as to why Tilray Brands' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Tilray Brands' P/S?

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.

We've established that Tilray Brands maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you take the next step, you should know about the 2 warning signs for Tilray Brands (1 can't be ignored!) that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

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