FreightCar America, Inc. (NASDAQ:RAIL) shares have retraced a considerable 27% in the last month, reversing a fair amount of their solid recent performance. Nonetheless, the last 30 days have barely left a scratch on the stock's annual performance, which is up a whopping 305%.

After such a large drop in price, FreightCar America may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.3x, since almost half of all companies in the Machinery industry in the United States have P/S ratios greater than 1.6x and even P/S higher than 4x 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.

What Does FreightCar America's Recent Performance Look Like?

FreightCar America certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

FreightCar America'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 grew revenue by an impressive 52% last year. The latest three year period has also seen an excellent 191% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 4.8% per annum during the coming three years according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 5.0% per annum, which is not materially different.

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

What We Can Learn From FreightCar America's P/S?

FreightCar America's recently weak share price has pulled its P/S back below other Machinery companies. 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.

Our examination of FreightCar America's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Before you take the next step, you should know about the 4 warning signs for FreightCar America (2 don't sit too well with us!) that we have uncovered.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.