XWELL, Inc. (NASDAQ:XWEL) shareholders would be excited to see that the share price has had a great month, posting a 33% gain and recovering from prior weakness. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 75% share price drop in the last twelve months.
Even after such a large jump in price, considering around half the companies operating in the United States' Consumer Services industry have price-to-sales ratios (or "P/S") above 1.4x, you may still consider XWELL as an solid investment opportunity with its 0.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
NasdaqCM:XWEL Price to Sales Ratio vs Industry March 10th 2024
What Does XWELL's Recent Performance Look Like?
For instance, XWELL's 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. If you 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.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on XWELL will help you shine a light on its historical performance.
How Is XWELL's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as XWELL's is when the company's growth is on track to lag the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 61%. Even so, admirably revenue has lifted 71% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.
This is in contrast to the rest of the industry, which is expected to grow by 16% over the next year, materially lower than the company's recent medium-term annualised growth rates.
With this in mind, we find it intriguing that XWELL's P/S isn't as high compared to that of its industry peers. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.
What Does XWELL's P/S Mean For Investors?
Despite XWELL's share price climbing recently, its P/S still lags most other companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
We're very surprised to see XWELL currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.
Before you take the next step, you should know about the 3 warning signs for XWELL (2 are a bit unpleasant!) that we have uncovered.
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.