Some Shareholders Feeling Restless Over PHINIA Inc.'s (NYSE:PHIN) P/S Ratio

There wouldn't be many who think PHINIA Inc.'s (NYSE:PHIN) price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S for the Auto Components industry in the United States is similar at about 0.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for PHINIA

What Does PHINIA's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, PHINIA has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

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

Retrospectively, the last year delivered a decent 4.6% gain to the company's revenues. The latest three year period has also seen an excellent 235% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 0.8% per year during the coming three years according to the one analyst following the company. That's shaping up to be materially lower than the 19% each year growth forecast for the broader industry.

With this information, we find it interesting that PHINIA 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.

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

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.

Given that PHINIA'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. 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.

We don't want to rain on the parade too much, but we did also find 3 warning signs for PHINIA 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.