Xaar plc (LON:XAR) Doing What It Can To Lift Shares

There wouldn't be many who think Xaar plc's (LON:XAR) price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S for the Tech industry in the United Kingdom is similar at about 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Xaar

How Has Xaar Performed Recently?

Xaar hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Xaar's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Xaar's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 8.4% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 28% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 16% during the coming year according to the four analysts following the company. With the industry only predicted to deliver 2.3%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Xaar's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Xaar's P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Xaar currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

It is also worth noting that we have found 1 warning sign for Xaar that you need to take into consideration.

If these risks are making you reconsider your opinion on Xaar, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.