Redwire Corporation (NYSE:RDW) Looks Just Right With A 27% Price Jump

Redwire Corporation (NYSE:RDW) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. The annual gain comes to 183% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given close to half the companies operating in the United States' Aerospace & Defense industry have price-to-sales ratios (or "P/S") below 2.2x, you may consider Redwire as a stock to potentially avoid with its 2.8x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

We've discovered 3 warning signs about Redwire. View them for free.

View our latest analysis for Redwire

How Has Redwire Performed Recently?

Redwire certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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 High P/S Ratio?

Redwire's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered an exceptional 25% gain to the company's top line. The latest three year period has also seen an excellent 121% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 31% per year during the coming three years according to the five analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 7.9% per annum, which is noticeably less attractive.

With this information, we can see why Redwire is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

The large bounce in Redwire's shares has lifted the company's P/S handsomely. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Redwire maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Aerospace & Defense industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Redwire (of which 2 shouldn't be ignored!) you should know about.

If these risks are making you reconsider your opinion on Redwire, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.