FreightCar America, Inc.'s (NASDAQ:RAIL) Shares Leap 30% Yet They're Still Not Telling The Full Story

Those holding FreightCar America, Inc. (NASDAQ:RAIL) shares would be relieved that the share price has rebounded 30% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The annual gain comes to 110% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, FreightCar America may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.3x, considering almost half of all companies in the Machinery industry in the United States have P/S ratios greater than 1.7x and even P/S higher than 4x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for FreightCar America

How Has FreightCar America Performed Recently?

FreightCar America certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. One possibility is that the P/S ratio is low because investors think the company's revenue is going to fall away like everyone else's soon. Those who are bullish on FreightCar America will be hoping that this isn't the case and the company continues to beat out the industry.

How Is FreightCar America's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as FreightCar America's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a decent 13% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 87% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 16% during the coming year according to the three analysts following the company. With the industry only predicted to deliver 0.3%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that FreightCar America's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On FreightCar America's P/S

Despite FreightCar America's share price climbing recently, its P/S still lags most other companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

A look at FreightCar America's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware FreightCar America is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored.

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.

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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.