Unfortunately for some shareholders, the Frontier Group Holdings, Inc. (NASDAQ:ULCC) share price has dived 42% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 53% loss during that time.
Even after such a large drop in price, it's still not a stretch to say that Frontier Group Holdings' price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Airlines industry in the United States, where the median P/S ratio is around 0.4x. 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 Frontier Group Holdings
What Does Frontier Group Holdings' P/S Mean For Shareholders?
Frontier Group Holdings certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
Want the full picture on analyst estimates for the company? Then our free report on Frontier Group Holdings will help you uncover what's on the horizon.What Are Revenue Growth Metrics Telling Us About The P/S?
The only time you'd be comfortable seeing a P/S like Frontier Group Holdings' is when the company's growth is tracking the industry closely.
Retrospectively, the last year delivered a decent 5.2% gain to the company's revenues. The latest three year period has also seen an excellent 83% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 11% per annum during the coming three years according to the ten analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 331% per annum, which is noticeably more attractive.
With this information, we find it interesting that Frontier Group Holdings is trading at a fairly similar P/S compared to the industry. 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.
The Bottom Line On Frontier Group Holdings' P/S
With its share price dropping off a cliff, the P/S for Frontier Group Holdings looks to be in line with the rest of the Airlines 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.
Our look at the analysts forecasts of Frontier Group Holdings' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. 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. 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 3 warning signs for Frontier Group Holdings (of which 1 is potentially serious!) you should know about.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.