Subdued Growth No Barrier To JetBlue Airways Corporation (NASDAQ:JBLU) With Shares Advancing 25%

JetBlue Airways Corporation (NASDAQ:JBLU) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 5.3% isn't as attractive.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about JetBlue Airways' P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Airlines industry in the United States is also close to 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for JetBlue Airways

How Has JetBlue Airways Performed Recently?

With only a limited decrease in revenue compared to most other companies of late, JetBlue Airways has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this relatively better revenue performance might be about to evaporate. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. But at the very least, you'd be hoping the company doesn't fall back into the pack if your plan is to pick up some stock while it's not in favour.

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How Is JetBlue Airways' Revenue Growth Trending?

In order to justify its P/S ratio, JetBlue Airways would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.9%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 14% in total. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Looking ahead now, revenue is anticipated to climb by 2.3% during the coming year according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 1,379%, which is noticeably more attractive.

In light of this, it's curious that JetBlue Airways' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

JetBlue Airways' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

When you consider that JetBlue Airways' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for JetBlue Airways that you should be aware of.

If you're unsure about the strength of JetBlue Airways' 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.