To the annoyance of some shareholders, XBP Europe Holdings, Inc. (NASDAQ:XBP) shares are down a considerable 51% in the last month, which continues a horrid run for the company.    The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 74% loss during that time.  

After such a large drop in price, XBP Europe Holdings may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.5x, considering almost half of all companies in the Diversified Financial industry in the United States have P/S ratios greater than 2.4x and even P/S higher than 5x aren't out of the ordinary.   Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.  

View our latest analysis for XBP Europe Holdings

NasdaqGM:XBP Price to Sales Ratio vs Industry January 21st 2024

What Does XBP Europe Holdings' Recent Performance Look Like?

For instance, XBP Europe Holdings' receding revenue in recent times would have to be some food for thought.   One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future.  However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.    

Although there are no analyst estimates available for XBP Europe Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.  

What Are Revenue Growth Metrics Telling Us About The Low P/S?  

There's an inherent assumption that a company should underperform the industry for P/S ratios like XBP Europe Holdings' to be considered reasonable.  

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.6%.   As a result, revenue from three years ago have also fallen 22% overall.  Therefore, it's fair to say the revenue growth recently has been undesirable for the company.  

In contrast to the company, the rest of the industry is expected to grow by 1.6% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why XBP Europe Holdings' P/S is lower than most of its industry peers.  Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse.  There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.  

What We Can Learn From XBP Europe Holdings' P/S?

The southerly movements of XBP Europe Holdings' shares means its P/S is now sitting at a pretty low level.      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.

Our examination of XBP Europe Holdings confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow.  Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either.  Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.    

We don't want to rain on the parade too much, but we did also find 5 warning signs for XBP Europe Holdings (2 are potentially serious!) that you need to be mindful of.  

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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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.