Not Many Are Piling Into Pininfarina S.p.A. (BIT:PINF) Just Yet

With a median price-to-sales (or "P/S") ratio of close to 0.5x in the Auto industry in Italy, you could be forgiven for feeling indifferent about Pininfarina S.p.A.'s (BIT:PINF) P/S ratio of 0.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Pininfarina

What Does Pininfarina's P/S Mean For Shareholders?

The revenue growth achieved at Pininfarina over the last year would be more than acceptable for most companies. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform 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 not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Pininfarina will help you shine a light on its historical performance.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Pininfarina would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 9.3%. The solid recent performance means it was also able to grow revenue by 14% 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.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 1.9% shows it's noticeably more attractive.

In light of this, it's curious that Pininfarina's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Pininfarina currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Pininfarina you should know about.

If these risks are making you reconsider your opinion on Pininfarina, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.