Knight-Swift Transportation Holdings Inc.'s (NYSE:KNX) Share Price Not Quite Adding Up

With a median price-to-sales (or "P/S") ratio of close to 1.3x in the Transportation industry in the United States, you could be forgiven for feeling indifferent about Knight-Swift Transportation Holdings Inc.'s (NYSE:KNX) P/S ratio of 1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Knight-Swift Transportation Holdings

What Does Knight-Swift Transportation Holdings' P/S Mean For Shareholders?

Recent times haven't been great for Knight-Swift Transportation Holdings as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Want the full picture on analyst estimates for the company? Then our free report on Knight-Swift Transportation Holdings will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Knight-Swift Transportation Holdings?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Knight-Swift Transportation Holdings' to be considered reasonable.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Although pleasingly revenue has lifted 54% in aggregate from three years ago, notwithstanding the last 12 months. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Turning to the outlook, the next three years should generate growth of 6.7% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 8.9% per year, which is noticeably more attractive.

In light of this, it's curious that Knight-Swift Transportation Holdings' P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Knight-Swift Transportation Holdings' P/S Mean For Investors?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

When you consider that Knight-Swift Transportation Holdings' 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. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

It is also worth noting that we have found 2 warning signs for Knight-Swift Transportation Holdings that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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