Investor Optimism Abounds Garrett Motion Inc. (NASDAQ:GTX) But Growth Is Lacking

There wouldn't be many who think Garrett Motion Inc.'s (NASDAQ:GTX) price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S for the Auto Components industry in the United States is similar at about 0.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Garrett Motion

What Does Garrett Motion's Recent Performance Look Like?

Recent times haven't been great for Garrett Motion as its revenue has been falling quicker than most other companies. It might be that many expect the dismal revenue performance to revert back to industry averages soon, which has kept the P/S from falling. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Garrett Motion will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Garrett Motion?

In order to justify its P/S ratio, Garrett Motion would need to produce growth that's similar to 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 11%. This means it has also seen a slide in revenue over the longer-term as revenue is down 4.3% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 3.7% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 18%, which is noticeably more attractive.

With this information, we find it interesting that Garrett Motion is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On Garrett Motion's P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Given that Garrett Motion's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Garrett Motion that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.