Market Might Still Lack Some Conviction On Redwire Corporation (NYSE:RDW) Even After 27% Share Price Boost

Redwire Corporation (NYSE:RDW) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The annual gain comes to 152% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Redwire may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.6x, considering almost half of all companies in the Aerospace & Defense industry in the United States have P/S ratios greater than 2.3x and even P/S higher than 6x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Redwire

What Does Redwire's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Redwire 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 40% gain to the company's top line. The latest three year period has also seen an excellent 183% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 16% each year as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 2.9% per year, which is noticeably less attractive.

In light of this, it's peculiar that Redwire's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Redwire's stock price has surged recently, but its but its P/S still remains modest. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

A look at Redwire's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

You always need to take note of risks, for example - Redwire has 2 warning signs we think you should be aware 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.