Unfortunately for some shareholders, the IM Cannabis Corp. (NASDAQ:IMCC) share price has dived 28% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 35% in that time.

Following the heavy fall in price, IM Cannabis may be sending very bullish signals at the moment with its price-to-sales (or “P/S”) ratio of 0.2x, since almost half of all companies in the Pharmaceuticals industry in the United States have P/S ratios greater than 4.4x and even P/S higher than 18x are not unusual. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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See our latest analysis for IM Cannabis

How IM Cannabis Has Been Performing

IM Cannabis has been doing a decent job lately as it’s been growing revenue at a reasonable pace. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. 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 ourfree report on IM Cannabis’earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For IM Cannabis?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 5.1% last year. Revenue has also lifted 20% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 24% over the next year, materially higher than the company’s recent medium-term annualised growth rates.

With this in consideration, it’s easy to understand why IM Cannabis’ P/S falls short of the mark set by its industry peers. Apparently many shareholders weren’t comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From IM Cannabis’ P/S?

Having almost fallen off a cliff, IM Cannabis’ share price has pulled its P/S way down as well. 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.

Our examination of IM Cannabis confirms that the company’s revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won’t provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example – IM Cannabis has 2 warning signs we think you should be aware of.

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.