Xerox Holdings Corporation's (NASDAQ:XRX) Revenues Are Not Doing Enough For Some Investors

When close to half the companies operating in the Tech industry in the United States have price-to-sales ratios (or "P/S") above 1.1x, you may consider Xerox Holdings Corporation (NASDAQ:XRX) as an attractive investment with its 0.2x 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 Xerox Holdings

How Has Xerox Holdings Performed Recently?

Xerox Holdings could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

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 9.7%. This means it has also seen a slide in revenue over the longer-term as revenue is down 12% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 1.4% each year during the coming three years according to the four analysts following the company. With the industry predicted to deliver 7.4% growth per year, that's a disappointing outcome.

In light of this, it's understandable that Xerox Holdings' P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. 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

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Xerox Holdings' P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Xerox Holdings' poor outlook justifies its low P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - Xerox Holdings has 2 warning signs (and 1 which is significant) we think you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.