FTAI Aviation Ltd. (NASDAQ:FTAI) Looks Just Right With A 25% Price Jump

Despite an already strong run, FTAI Aviation Ltd. (NASDAQ:FTAI) shares have been powering on, with a gain of 25% in the last thirty days. The annual gain comes to 154% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given around half the companies in the United States' Trade Distributors industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider FTAI Aviation as a stock to avoid entirely with its 6x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for FTAI Aviation

How FTAI Aviation Has Been Performing

Recent times have been advantageous for FTAI Aviation as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

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

There's an inherent assumption that a company should far outperform the industry for P/S ratios like FTAI Aviation's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 65%. The latest three year period has also seen an excellent 293% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 13% each year as estimated by the nine analysts watching the company. That's shaping up to be materially higher than the 6.2% per annum growth forecast for the broader industry.

In light of this, it's understandable that FTAI Aviation's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From FTAI Aviation's P/S?

FTAI Aviation's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

Our look into FTAI Aviation shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with FTAI Aviation (at least 1 which is significant), and understanding these should be part of your investment process.

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.