QXO (NYSE:QXO) Valuation: Examining Growth Prospects and Risks After Recent Share Price Rebound

QXO (NYSE:QXO) shares finished higher at the close, rising 7% for the day. The company’s stock has traded in a wide range over the past month, giving investors plenty to consider regarding its current valuation.

See our latest analysis for QXO.

While QXO’s 1-day share price gain of 6.51% is eye-catching, the longer trend reveals a more nuanced story. After starting the year strong, momentum has faded recently, reflected in a 30-day share price return of -7.48% and a three-year total shareholder return of -20.15%. Still, the year-to-date share price return sits at a healthy 11.84%, suggesting the stock is recovering ground and remains on the radar for growth-minded investors.

If this rebound in QXO’s price has you thinking about what else is showing strong momentum, it could be a great moment to broaden your search and discover fast growing stocks with high insider ownership

The key question for investors now is whether QXO’s recent gains mark the beginning of a real recovery, or if current prices already reflect all the growth that lies ahead. Is there still value to unlock, or has the market already priced in the company’s future?

Price-to-Sales of 2.5x: Is it justified?

QXO trades with a price-to-sales ratio of 2.5x, which positions the stock as more expensive than most other companies in its US Trade Distributors industry. With its last close at $17.19, investors are paying a steeper price for each dollar of revenue compared to similar businesses.

The price-to-sales (P/S) ratio measures how much the market is willing to pay for every dollar of QXO's sales. It is an important benchmark for companies that are not yet profitable, as it focuses on revenue rather than earnings. For QXO, which is currently unprofitable, the P/S ratio is a particularly relevant yardstick for value.

While the 2.5x P/S ratio is favorable when compared to the peer group average of 2.8x, it is notably higher than the US Trade Distributors industry average of 1.1x. This gap suggests that the market has high expectations for QXO’s future growth compared to most of its direct competitors. However, relative to what our models estimate as a fair price-to-sales ratio of 5.2x, QXO might still have room to re-rate if it can deliver on projected growth.

Result: Price-to-Sales of 2.5x (ABOUT RIGHT)

Explore the SWS fair ratio for QXO

However, persistently negative net income and volatile recent returns could signal that QXO’s recovery may not be as sustainable as it appears.

Find out about the key risks to this QXO narrative.

Another View: Our DCF Model Paints a Different Picture

Looking through the lens of our DCF model, QXO appears significantly undervalued. With the current share price sitting at $17.19 and our DCF estimate of fair value at $43.70, the stock is trading at a steep 60.7% discount. This raises the question of whether the market is being too cautious or if there are risks that justify this gap.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out QXO for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 881 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own QXO Narrative

If you prefer a fresh perspective or want to dig into the numbers yourself, you can easily build your own QXO narrative in just a few minutes. Do it your way

A great starting point for your QXO research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

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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.

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