XBP Europe Holdings, Inc.'s (NASDAQ:XBP) Price Is Right But Growth Is Lacking After Shares Rocket 58%

XBP Europe Holdings, Inc. (NASDAQ:XBP) shares have had a really impressive month, gaining 58% after a shaky period beforehand. But the last month did very little to improve the 89% share price decline over the last year.

Although its price has surged higher, XBP Europe Holdings' price-to-sales (or "P/S") ratio of 0.3x might still make it look like a strong buy right now compared to the wider Diversified Financial industry in the United States, where around half of the companies have P/S ratios above 2.7x 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 highly reduced P/S.

View our latest analysis for XBP Europe Holdings

How XBP Europe Holdings Has Been Performing

For instance, XBP Europe Holdings' 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. Those who are bullish on XBP Europe Holdings will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

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.

How Is XBP Europe Holdings' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as XBP Europe Holdings' is when the company's growth is on track to lag the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 12%. As a result, revenue from three years ago have also fallen 28% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 4.5% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that XBP Europe Holdings is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On XBP Europe Holdings' P/S

Even after such a strong price move, XBP Europe Holdings' P/S still trails the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a 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. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. 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.

Plus, you should also learn about these 5 warning signs we've spotted with XBP Europe Holdings (including 4 which are a bit concerning).

If you're unsure about the strength of XBP Europe Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.