Cooper-Standard Holdings Inc.'s (NYSE:CPS) Shares Climb 46% But Its Business Is Yet to Catch Up

Cooper-Standard Holdings Inc. (NYSE:CPS) shareholders have had their patience rewarded with a 46% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 35% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Cooper-Standard Holdings' P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Auto Components industry in the United States is also close to 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Our free stock report includes 3 warning signs investors should be aware of before investing in Cooper-Standard Holdings. Read for free now.

View our latest analysis for Cooper-Standard Holdings

How Has Cooper-Standard Holdings Performed Recently?

With revenue that's retreating more than the industry's average of late, Cooper-Standard Holdings has been very sluggish. Perhaps the market is expecting future revenue performance to begin matching the rest of the industry, which has kept the P/S from declining. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Cooper-Standard Holdings.

Is There Some Revenue Growth Forecasted For Cooper-Standard Holdings?

In order to justify its P/S ratio, Cooper-Standard Holdings would need to produce growth that's similar to 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 3.1%. Regardless, revenue has managed to lift by a handy 20% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 4.7% as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 9.5%, which is noticeably more attractive.

In light of this, it's curious that Cooper-Standard Holdings' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. 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 Cooper-Standard Holdings' P/S

Its shares have lifted substantially and now Cooper-Standard Holdings' P/S is back within range of the industry median. 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.

Given that Cooper-Standard Holdings' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. 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. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Before you take the next step, you should know about the 3 warning signs for Cooper-Standard Holdings (2 are concerning!) that we have uncovered.

If you're unsure about the strength of Cooper-Standard Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.