XOX Berhad's (KLSE:XOX) 33% Dip In Price Shows Sentiment Is Matching Revenues

XOX Berhad (KLSE:XOX) shares have had a horrible month, losing 33% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 50% loss during that time.

Since its price has dipped substantially, considering about half the companies operating in Malaysia's Wireless Telecom industry have price-to-sales ratios (or "P/S") above 2.4x, you may consider XOX Berhad as an great investment opportunity with its 0.2x 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 so limited.

Check out our latest analysis for XOX Berhad

What Does XOX Berhad's P/S Mean For Shareholders?

For instance, XOX Berhad'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 XOX Berhad will help you shine a light on its historical performance.

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

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

Retrospectively, the last year delivered a frustrating 5.5% decrease to the company's top line. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Comparing that to the industry, which is predicted to deliver 7.1% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why XOX Berhad is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Key Takeaway

XOX Berhad's P/S looks about as weak as its stock price lately. 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 XOX Berhad revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for XOX Berhad (3 are significant) you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.