The Goodyear Tire & Rubber Company's (NASDAQ:GT) price-to-sales (or "P/S") ratio of 0.1x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Auto Components industry in the United States have P/S ratios greater than 0.7x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Goodyear Tire & Rubber's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Goodyear Tire & Rubber's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Goodyear Tire & Rubber?

The only time you'd be truly comfortable seeing a P/S as low as Goodyear Tire & Rubber's is when the company's growth is on track to lag 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 5.5%. Still, the latest three year period has seen an excellent 33% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Looking ahead now, revenue is anticipated to climb by 0.4% per year during the coming three years according to the eight analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 31% each year, which is noticeably more attractive.

With this information, we can see why Goodyear Tire & Rubber is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Goodyear Tire & Rubber's P/S?

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.

We've established that Goodyear Tire & Rubber maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Goodyear Tire & Rubber that you need to take into consideration.

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

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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.