To the annoyance of some shareholders, Limoneira Company (NASDAQ:LMNR) shares are down a considerable 28% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 19% in that time.
In spite of the heavy fall in price, when almost half of the companies in the United States' Food industry have price-to-sales ratios (or "P/S") below 0.7x, you may still consider Limoneira as a stock probably not worth researching with its 1.5x 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 as high as it is.
View our latest analysis for Limoneira
How Limoneira Has Been Performing
With revenue growth that's inferior to most other companies of late, Limoneira has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Keen to find out how analysts think Limoneira'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 Limoneira?
In order to justify its P/S ratio, Limoneira would need to produce impressive growth in excess of the industry.
Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Regardless, revenue has managed to lift by a handy 11% in aggregate from three years ago, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.
Looking ahead now, revenue is anticipated to slump, contracting by 0.4% during the coming year according to the dual analysts following the company. That's not great when the rest of the industry is expected to grow by 1.9%.
With this information, we find it concerning that Limoneira is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh heavily on the share price eventually.
What We Can Learn From Limoneira's P/S?
Despite the recent share price weakness, Limoneira's P/S remains higher than most other companies in the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Limoneira currently trades on a much higher than expected P/S for a company whose revenues are forecast to decline. Right now we aren't comfortable with the high P/S as the predicted future revenue decline likely to impact the positive sentiment that's propping up the P/S. At these price levels, investors should remain cautious, particularly if things don't improve.
And what about other risks? Every company has them, and we've spotted 1 warning sign for Limoneira you should know about.
If you're unsure about the strength of Limoneira'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.