A Piece Of The Puzzle Missing From V2X, Inc.'s (NYSE:VVX) 28% Share Price Climb

Simply Wall St · 10/15 15:00

The V2X, Inc. (NYSE:VVX) share price has done very well over the last month, posting an excellent gain of 28%. Taking a wider view, although not as strong as the last month, the full year gain of 22% is also fairly reasonable.

In spite of the firm bounce in price, V2X may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.5x, since almost half of all companies in the Aerospace & Defense industry in the United States have P/S ratios greater than 2.4x and even P/S higher than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for V2X

ps-multiple-vs-industry
NYSE:VVX Price to Sales Ratio vs Industry October 15th 2024

What Does V2X's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, V2X has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Keen to find out how analysts think V2X's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

V2X's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.2% last year. Pleasingly, revenue has also lifted 156% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next three years should generate growth of 5.8% each year as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 2.9% per year growth forecast for the broader industry.

With this information, we find it odd that V2X is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Bottom Line On V2X's P/S

V2X's stock price has surged recently, but its but its P/S still remains modest. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

To us, it seems V2X currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with V2X (including 1 which is potentially serious).

If these risks are making you reconsider your opinion on V2X, explore our interactive list of high quality stocks to get an idea of what else is out there.