Potential Upside For XPON Technologies Group Limited (ASX:XPN) Not Without Risk
With a price-to-sales (or "P/S") ratio of 2.2x XPON Technologies Group Limited (ASX:XPN) may be sending bullish signals at the moment, given that almost half of all the Software companies in Australia have P/S ratios greater than 2.7x and even P/S higher than 6x 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 limited.
Check out our latest analysis for XPON Technologies Group
What Does XPON Technologies Group's P/S Mean For Shareholders?
XPON Technologies Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
Want the full picture on analyst estimates for the company? Then our free report on XPON Technologies Group will help you uncover what's on the horizon.
Is There Any Revenue Growth Forecasted For XPON Technologies Group?
In order to justify its P/S ratio, XPON Technologies Group would need to produce sluggish growth that's trailing the industry.
Taking a look back first, we see that the company grew revenue by an impressive 66% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 37% each year during the coming three years according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 21% each year, which is noticeably less attractive.
With this in consideration, we find it intriguing that XPON Technologies Group's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
What Does XPON Technologies Group's P/S Mean For Investors?
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.
A look at XPON Technologies Group's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with XPON Technologies Group, and understanding them should be part of your investment process.
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.
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