Investors Don't See Light At End Of The Goodyear Tire & Rubber Company's (NASDAQ:GT) Tunnel

The Goodyear Tire & Rubber Company's (NASDAQ:GT) price-to-sales (or "P/S") ratio of 0.2x might make it look like a buy right now compared to the Auto Components industry in the United States, where around half of the companies have P/S ratios above 0.7x and even P/S above 3x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Goodyear Tire & Rubber

What Does Goodyear Tire & Rubber's P/S Mean For Shareholders?

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.

Want the full picture on analyst estimates for the company? Then our free report on Goodyear Tire & Rubber will help you uncover what's on the horizon.

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 a frustrating 5.6% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 54% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 0.6% each year during the coming three years according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 18% per year, which is noticeably more attractive.

With this information, we can see why Goodyear Tire & Rubber is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for Goodyear Tire & Rubber that you should be aware of.

If you're unsure about the strength of Goodyear Tire & Rubber'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.