Subdued Growth No Barrier To Surf Air Mobility Inc. (NYSE:SRFM) With Shares Advancing 29%

Surf Air Mobility Inc. (NYSE:SRFM) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. The annual gain comes to 136% following the latest surge, making investors sit up and take notice.

After such a large jump in price, when almost half of the companies in the United States' Airlines industry have price-to-sales ratios (or "P/S") below 0.6x, you may consider Surf Air Mobility as a stock probably not worth researching with its 2.1x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Surf Air Mobility

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

With only a limited decrease in revenue compared to most other companies of late, Surf Air Mobility has been doing relatively well. The P/S ratio is probably high because investors think this comparatively better revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price, especially if revenue continues to dissolve.

Want the full picture on analyst estimates for the company? Then our free report on Surf Air Mobility will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

Surf Air Mobility's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than 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 4.0%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, despite the drawbacks experienced in the last 12 months. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it is now in decline.

Turning to the outlook, the next three years should generate growth of 34% each year as estimated by the three analysts watching the company. That's shaping up to be materially lower than the 724% per annum growth forecast for the broader industry.

In light of this, it's alarming that Surf Air Mobility's P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Surf Air Mobility's P/S?

Surf Air Mobility's P/S is on the rise since its shares have risen strongly. 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.

We've concluded that Surf Air Mobility currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for Surf Air Mobility (4 are a bit unpleasant) you should be aware of.

If you're unsure about the strength of Surf Air Mobility'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.