Those holding Xerox Holdings Corporation (NASDAQ:XRX) shares would be relieved that the share price has rebounded 28% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 62% share price drop in the last twelve months.
In spite of the firm bounce in price, Xerox Holdings' price-to-sales (or "P/S") ratio of 0.1x might still make it look like a buy right now compared to the Tech industry in the United States, where around half of the companies have P/S ratios above 0.9x and even P/S above 3x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
We've discovered 2 warning signs about Xerox Holdings. View them for free.View our latest analysis for Xerox Holdings
What Does Xerox Holdings' Recent Performance Look Like?
While the industry has experienced revenue growth lately, Xerox Holdings' revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still 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 Xerox Holdings.What Are Revenue Growth Metrics Telling Us About The Low P/S?
Xerox Holdings' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 7.4%. The last three years don't look nice either as the company has shrunk revenue by 12% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 2.1% over the next year. With the industry predicted to deliver 5.1% growth, the company is positioned for a weaker revenue result.
With this information, we can see why Xerox Holdings is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Final Word
Xerox Holdings' stock price has surged recently, but its but its P/S still remains modest. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
We've established that Xerox Holdings maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
You need to take note of risks, for example - Xerox Holdings has 2 warning signs (and 1 which is a bit concerning) we think you should know about.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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