(CTN News) – It may not be a noteworthy observation to consider Delta Air Lines, Inc.’s (NYSE:DAL) price-to-sales (or “P/S”) ratio of 0.5x, given that it closely aligns with the median P/S for the Airlines industry in the United States.
However, it would be unwise to dismiss the P/S ratio without explaining, as investors could potentially overlook a unique opportunity or make an expensive error.
How does Delta Air Lines’ recent performance appear?
If you are interested in gaining insights into the future projections made by analysts, we recommend taking a look at our complimentary report on Delta Air Lines.
Is Delta Air Lines expecting revenue growth in the future?
The only time you would feel comfortable seeing a P/S like Delta Air Lines’ is when the company’s expansion aligns closely with the industry.
After analyzing the revenue growth from the previous year, the company showed an impressive increase of 23%.
In the past three years, there has been a remarkable overall revenue rise of 133%, mainly due to its short-term performance. Therefore, we can confidently say that the company effectively expanded its revenue during this period.
Looking ahead, analysts predict that Delta Air Lines will experience a growth rate of 2.6% per year for the next three years. However, this projection is significantly lower than the industry’s expected growth rate of 4.7% per year.
Given this information, it is interesting to note that Delta Air Lines is currently trading at a P/S ratio that is quite similar to the industry’s. Clearly, many investors in the company are less pessimistic than analysts and are unwilling to sell their stock at the moment.
These shareholders may face disappointment in the future if the P/S ratio decreases to levels more in line with the growth outlook.
The main point to remember.
We generally use the price-to-sales ratio to assess a company’s financial health. However, considering Delta Air Lines’ modest revenue growth projections compared to the industry, we find it surprising that the company is trading at its current P/S ratio.
We lack confidence in the ratio as future revenues are unlikely to sustain optimism in the long run. A positive change is needed to justify the current ratio. It’s important to consider potential risks, and we have identified one warning sign for Delta Air Lines to be mindful of.