The Market Lifts FreightCar America, Inc. (NASDAQ:RAIL) Shares 32% But It Can Do More

Despite an already strong run, FreightCar America, Inc. (NASDAQ:RAIL) shares have been powering on, with a gain of 32% in the last thirty days. The last 30 days were the cherry on top of the stock's 369% gain in the last year, which is nothing short of spectacular.

Although its price has surged higher, FreightCar America may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.5x, since almost half of all companies in the Machinery industry in the United States have P/S ratios greater than 1.4x and even P/S higher than 4x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for FreightCar America

What Does FreightCar America's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, FreightCar America has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Keen to find out how analysts think FreightCar America's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like FreightCar America's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 29% last year. Pleasingly, revenue has also lifted 220% 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 9.5% each year as estimated by the two analysts watching the company. With the industry only predicted to deliver 5.3% per year, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that FreightCar America's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

FreightCar America's stock price has surged recently, but its but its P/S still remains modest. 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.

A look at FreightCar America's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 3 warning signs for FreightCar America you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.