Why We Still Don’t Care About VinFast Auto Ltd.’s (NASDAQ:VFS) 35% Price Drop

Unfortunately for some shareholders, VinFast Auto Ltd. (NASDAQ:VFS) stock price is down 35% in the last thirty days, extending the recent pain. For any long-term shareholders, last month ended the year to be forgotten by reducing the share price by 68%.

Even after that significant price drop, given that roughly half of the companies in the US auto industry have a price-to-sales ratio (or “P/S”) below 1.9x, you can still consider VinFast Auto a stock to avoid quite with its 6.7x P/S ratio. However, the P/S may be too high for a reason and needs further investigation to determine if it is justified.

Check out our latest VinFast Auto analysis

How Has VinFast Auto Done Lately?

VinFast Auto has certainly been doing well lately as it has been growing more revenue than most other companies. It appears that many expect the strong earnings performance to continue, which has pushed up the P/S. If not, then existing shareholders may be less concerned about the potential share price.

If you want to see what the analysts are predicting going forward, you should check our free report on VinFast Auto.

Are Earnings Forecasts Consistent with High P/S Ratios?

The only time you’d be happy to see a P/S as steep as VinFast Auto’s is when the company’s growth is about to dominate the industry decisively.

Looking back first, we see that the company grew revenue by an impressive 92% last year. The most recent three-year period has also seen an impressive 110% overall increase in revenue, aided by its short-term performance. Accordingly, shareholders would certainly welcome such medium-term levels of earnings growth.

Moving to the future, estimates from four analysts covering the company suggest revenue should grow by 83% per year over the next three years. With the industry forecast to yield just 20% per year, the company is well positioned for strong earnings results.

With this in mind, it is not difficult to understand why VinFast Auto’s P/S is high compared to its peers in the industry. It seems that many investors are expecting this good future growth and are willing to pay more for the stock.

The Last Word

VinFast Auto’s stock may have suffered, but its P/S remains high. The price-to-sales ratio is said to be a poor measure of value within a given industry, but it can be a powerful indicator of business sentiment.

As we suspected, our analysis of VinFast Auto’s forecast analysis revealed that its strong earnings outlook is contributing to its high P/S. At this stage investors feel the possibility of earnings deterioration is very remote, thus justifying the elevated P/S ratio. If these conditions do not change, they will continue to provide significant support to the share price.

It is also worth noting that we have found 4 warning signs of VinFast Auto (3 is the most likely!) that you need to consider.

If you are I am not sure about VinFast Auto’s business strengthwhy not explore our interactive stock list with solid business fundamentals for other companies you may have missed.

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