Why Investors Shouldn't Be Surprised By The Goodyear Tire & Rubber Company's (NASDAQ:GT) 26% Share Price Plunge

To the annoyance of some shareholders, The Goodyear Tire & Rubber Company (NASDAQ:GT) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 37% in that time.

Since its price has dipped substantially, given about half the companies operating in the United States' Auto Components industry have price-to-sales ratios (or "P/S") above 0.7x, you may consider Goodyear Tire & Rubber as an attractive investment with its 0.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Goodyear Tire & Rubber

What Does Goodyear Tire & Rubber's Recent Performance Look Like?

Goodyear Tire & Rubber could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Goodyear Tire & Rubber?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 5.5%. Still, the latest three year period has seen an excellent 33% overall rise in revenue, in spite of its unsatisfying short-term performance. 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 1.2% per annum during the coming three years according to the nine analysts following the company. With the industry predicted to deliver 16% growth per year, the company is positioned for a weaker revenue result.

With this information, we can see why Goodyear Tire & Rubber is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Goodyear Tire & Rubber's P/S?

Goodyear Tire & Rubber's recently weak share price has pulled its P/S back below other Auto Components companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Goodyear Tire & Rubber maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. 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.

It is also worth noting that we have found 1 warning sign for Goodyear Tire & Rubber that you need to take into consideration.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com