Investors Aren't Buying X Financial's (NYSE:XYF) Revenues

When close to half the companies operating in the Consumer Finance industry in the United States have price-to-sales ratios (or "P/S") above 1x, you may consider X Financial (NYSE:XYF) as an attractive investment with its 0.5x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for X Financial

What Does X Financial's Recent Performance Look Like?

It looks like revenue growth has deserted X Financial recently, which is not something to boast about. Perhaps the market believes the recent lacklustre revenue performance is a sign of future underperformance relative to industry peers, hurting the P/S. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

Although there are no analyst estimates available for X Financial, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For X Financial?

X Financial's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Regardless, revenue has managed to lift by a handy 30% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 31% shows it's noticeably less attractive.

With this information, we can see why X Financial 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 Final Word

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 X Financial revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Before you settle on your opinion, we've discovered 2 warning signs for X Financial (1 shouldn't be ignored!) that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.