More Unpleasant Surprises Could Be In Store For Surf Air Mobility Inc.'s (NYSE:SRFM) Shares After Tumbling 26%

To the annoyance of some shareholders, Surf Air Mobility Inc. (NYSE:SRFM) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 35% in that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Surf Air Mobility's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Airlines industry in the United States is also close to 0.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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See our latest analysis for Surf Air Mobility

What Does Surf Air Mobility's Recent Performance Look Like?

Surf Air Mobility certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. It might be that many expect the strong revenue performance to deteriorate like the rest, which has kept the P/S ratio from rising. Those who are bullish on Surf Air Mobility will be hoping that this isn't the case, so that they can pick up the stock at a slightly lower valuation.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Surf Air Mobility.

How Is Surf Air Mobility's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 31%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 27% per annum as estimated by the four analysts watching the company. With the industry predicted to deliver 528% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's curious that Surf Air Mobility's 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. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

With its share price dropping off a cliff, the P/S for Surf Air Mobility looks to be in line with the rest of the Airlines 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.

Given that Surf Air Mobility's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it 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. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 6 warning signs for Surf Air Mobility (of which 2 don't sit too well with us!) you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.