The American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) share price has done very well over the last month, posting an excellent gain of 26%. Taking a wider view, although not as strong as the last month, the full year gain of 15% is also fairly reasonable.
In spite of the firm bounce in price, when close to half the companies operating in the United States' Auto Components industry have price-to-sales ratios (or "P/S") above 0.9x, you may still consider American Axle & Manufacturing Holdings as an enticing stock to check out with its 0.2x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for American Axle & Manufacturing Holdings
NYSE:AXL Price to Sales Ratio vs Industry December 28th 2023
How Has American Axle & Manufacturing Holdings Performed Recently?
Recent times haven't been great for American Axle & Manufacturing Holdings as its revenue has been rising slower than most other companies. 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.
Want the full picture on analyst estimates for the company? Then our free report on American Axle & Manufacturing Holdings will help you uncover what's on the horizon.
Is There Any Revenue Growth Forecasted For American Axle & Manufacturing Holdings?
There's an inherent assumption that a company should underperform the industry for P/S ratios like American Axle & Manufacturing Holdings' to be considered reasonable.
Taking a look back first, we see that the company managed to grow revenues by a handy 6.5% last year. The solid recent performance means it was also able to grow revenue by 28% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 3.0% per year as estimated by the nine analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 20% per year, which is noticeably more attractive.
In light of this, it's understandable that American Axle & Manufacturing Holdings' 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.
What Does American Axle & Manufacturing Holdings' P/S Mean For Investors?
Despite American Axle & Manufacturing Holdings' share price climbing recently, its P/S still lags most other companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We've established that American Axle & Manufacturing Holdings maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.
We don't want to rain on the parade too much, but we did also find 2 warning signs for American Axle & Manufacturing Holdings (1 is concerning!) that you need to be mindful 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.