Improved Revenues Required Before The Goodyear Tire & Rubber Company (NASDAQ:GT) Shares Find Their Feet

The Goodyear Tire & Rubber Company's (NASDAQ:GT) price-to-sales (or "P/S") ratio of 0.2x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Auto Components industry in the United States have P/S ratios greater than 0.9x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Goodyear Tire & Rubber

How Has Goodyear Tire & Rubber Performed Recently?

While the industry has experienced revenue growth lately, Goodyear Tire & Rubber's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Goodyear Tire & Rubber.

How Is Goodyear Tire & Rubber's Revenue Growth Trending?

In order to justify its P/S ratio, Goodyear Tire & Rubber would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Although pleasingly revenue has lifted 64% in aggregate from three years ago, notwithstanding the last 12 months. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 1.4% each year over the next three years. With the industry predicted to deliver 20% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Goodyear Tire & Rubber's 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 Goodyear Tire & Rubber's P/S Mean For Investors?

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.

As we suspected, our examination of Goodyear Tire & Rubber's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Goodyear Tire & Rubber that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.