When close to half the companies operating in the Auto Components industry in the United States have price-to-sales ratios (or "P/S") above 0.7x, you may consider American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) as an attractive investment with its 0.1x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
NYSE:AXL Price to Sales Ratio vs Industry April 17th 2024
What Does American Axle & Manufacturing Holdings' P/S Mean For Shareholders?
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 you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.
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.
How Is American Axle & Manufacturing Holdings' Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as American Axle & Manufacturing Holdings' is when the company's growth is on track to lag the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 4.8%. Revenue has also lifted 29% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 1.1% per annum during the coming three years according to the nine analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 14% each 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.
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.
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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
We don't want to rain on the parade too much, but we did also find 1 warning sign for American Axle & Manufacturing Holdings that you need to be mindful of.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.