There's No Escaping Heartland Express, Inc.'s (NASDAQ:HTLD) Muted Revenues

You may think that with a price-to-sales (or "P/S") ratio of 0.9x Heartland Express, Inc. (NASDAQ:HTLD) is a stock worth checking out, seeing as almost half of all the Transportation companies in the United States have P/S ratios greater than 1.4x and even P/S higher than 5x aren't out of the ordinary. 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 Heartland Express

How Heartland Express Has Been Performing

Heartland Express could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still 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 Heartland Express.

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

The only time you'd be truly comfortable seeing a P/S as low as Heartland Express' is when the company's growth is on track to lag the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 12%. Even so, admirably revenue has lifted 79% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue growth is heading into negative territory, declining 0.2% over the next year. Meanwhile, the broader industry is forecast to expand by 7.7%, which paints a poor picture.

With this in consideration, we find it intriguing that Heartland Express' P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Heartland Express' P/S is on the lower end of the spectrum. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Heartland Express with six simple checks will allow you to discover any risks that could be an issue.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com