Redwire Corporation's (NYSE:RDW) Share Price Is Still Matching Investor Opinion Despite 37% Slump

Explore Redwire's Fair Values from the Community and select yours

Redwire Corporation (NYSE:RDW) shares have had a horrible month, losing 37% after a relatively good period beforehand. Looking at the bigger picture, even after this poor month the stock is up 84% in the last year.

Although its price has dipped substantially, given close to half the companies operating in the United States' Aerospace & Defense industry have price-to-sales ratios (or "P/S") below 3.2x, you may still consider Redwire as a stock to potentially avoid with its 4.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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Check out our latest analysis for Redwire

What Does Redwire's Recent Performance Look Like?

For example, consider that Redwire's financial performance has been pretty ordinary lately as revenue growth is non-existent. It might be that many are expecting an improvement to the uninspiring revenue performance over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Redwire, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Redwire?

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

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period has seen an excellent 94% overall rise in revenue, in spite of its uninspiring short-term performance. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Comparing that to the industry, which is only predicted to deliver 9.5% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we can see why Redwire is trading at such a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Final Word

Despite the recent share price weakness, Redwire's P/S remains higher than most other companies in the industry. 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.

It's no surprise that Redwire can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

It is also worth noting that we have found 3 warning signs for Redwire (2 shouldn't be ignored!) that you need to take into consideration.

If you're unsure about the strength of Redwire's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.