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You may think that with a price-to-sales (or "P/S") ratio of 0.8x Xperi Inc. (NYSE:XPER) is definitely a stock worth checking out, seeing as almost half of all the Software companies in the United States have P/S ratios greater than 4.2x and even P/S above 10x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Xperi
How Has Xperi Performed Recently?
Xperi could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Keen to find out how analysts think Xperi's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Xperi's Revenue Growth Trending?
Xperi's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 5.7% last year. The latest three year period has also seen an excellent 38% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 6.7% over the next year. With the industry predicted to deliver 15% growth, the company is positioned for a weaker revenue result.
With this information, we can see why Xperi is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Key Takeaway
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.
As expected, our analysis of Xperi'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.