Xiao-I Corporation (NASDAQ:AIXI) Held Back By Insufficient Growth Even After Shares Climb 32%

Xiao-I Corporation (NASDAQ:AIXI) shareholders would be excited to see that the share price has had a great month, posting a 32% gain and recovering from prior weakness. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 57% share price drop in the last twelve months.

Although its price has surged higher, Xiao-I may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.9x, since almost half of all companies in the Software industry in the United States have P/S ratios greater than 4.7x and even P/S higher than 11x are not unusual. 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 Xiao-I

How Has Xiao-I Performed Recently?

Xiao-I certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Xiao-I.

Do Revenue Forecasts Match The Low P/S Ratio?

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

If we review the last year of revenue growth, the company posted a terrific increase of 23%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 20% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 25%, which is noticeably more attractive.

With this information, we can see why Xiao-I is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Even after such a strong price move, Xiao-I's P/S still trails the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As expected, our analysis of Xiao-I's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 5 warning signs for Xiao-I (2 shouldn't be ignored!) that we have uncovered.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.