Revenues Working Against XBP Europe Holdings, Inc.'s (NASDAQ:XBP) Share Price Following 60% Dive

The XBP Europe Holdings, Inc. (NASDAQ:XBP) share price has fared very poorly over the last month, falling by a substantial 60%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 45% in that time.

After such a large drop in price, XBP Europe Holdings' price-to-sales (or "P/S") ratio of 1x might make it look like a buy right now compared to the Diversified Financial industry in the United States, where around half of the companies have P/S ratios above 2.6x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for XBP Europe Holdings

How XBP Europe Holdings Has Been Performing

As an illustration, revenue has deteriorated at XBP Europe Holdings over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. 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 XBP Europe Holdings will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For XBP Europe Holdings?

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

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 9.6%. The last three years don't look nice either as the company has shrunk revenue by 22% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 5.3% shows it's an unpleasant look.

With this information, we are not surprised that XBP Europe Holdings is trading at a P/S lower than the industry. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

XBP Europe Holdings' recently weak share price has pulled its P/S back below other Diversified Financial companies. 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.

As we suspected, our examination of XBP Europe Holdings revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Before you settle on your opinion, we've discovered 4 warning signs for XBP Europe Holdings (2 are a bit unpleasant!) that you should be aware of.

If these risks are making you reconsider your opinion on XBP Europe Holdings, 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.