Xilam Animation (EPA:XIL) Held Back By Insufficient Growth Even After Shares Climb 36%

Xilam Animation (EPA:XIL) shares have had a really impressive month, gaining 36% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 41% in the last twelve months.

Even after such a large jump in price, when close to half the companies operating in France's Entertainment industry have price-to-sales ratios (or "P/S") above 1.2x, you may still consider Xilam Animation as an enticing stock to check out with its 0.6x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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Check out our latest analysis for Xilam Animation

What Does Xilam Animation's P/S Mean For Shareholders?

Recent times haven't been great for Xilam Animation as its revenue has been falling quicker than most other companies. Perhaps the market isn't expecting future revenue performance to improve, which has kept the P/S suppressed. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Xilam Animation will help you uncover what's on the horizon.

How Is Xilam Animation's Revenue Growth Trending?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 42%. The last three years don't look nice either as the company has shrunk revenue by 26% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 36% during the coming year according to the dual analysts following the company. Meanwhile, the broader industry is forecast to expand by 2.2%, which paints a poor picture.

With this information, we are not surprised that Xilam Animation is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Xilam Animation's P/S

Despite Xilam Animation's share price climbing recently, its P/S still lags most other companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Xilam Animation's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Xilam Animation's poor outlook justifies its low P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Xilam Animation that you should be aware 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.