Risks To Shareholder Returns Are Elevated At These Prices For Aptiv PLC (NYSE:APTV)

With a median price-to-sales (or "P/S") ratio of close to 0.9x in the Auto Components industry in the United States, you could be forgiven for feeling indifferent about Aptiv PLC's (NYSE:APTV) P/S ratio of 1.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Aptiv

What Does Aptiv's Recent Performance Look Like?

Recent revenue growth for Aptiv has been in line with the industry. Perhaps the market is expecting future revenue performance to show no drastic signs of changing, justifying the P/S being at current levels. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

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

How Is Aptiv's Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 16% last year. Pleasingly, revenue has also lifted 59% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 9.2% per annum as estimated by the analysts watching the company. That's shaping up to be materially lower than the 20% per annum growth forecast for the broader industry.

With this in mind, we find it intriguing that Aptiv's P/S is closely matching its industry peers. 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.

What We Can Learn From Aptiv's P/S?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look at the analysts forecasts of Aptiv's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Aptiv is showing 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.