Exponential Fitness Inc. (NYSE:XPOF) shares have had a very impressive month, climbing 70% after a volatile period. Unfortunately, last month’s gains don’t come close to making up for last year’s losses, with the stock still down 11% over the same period.
Despite the strong share price gains, the median price-to-sales (P/S) multiple for the U.S. hospitality industry is also close to 1.2x, so it’s easy to be apathetic about Xponential Fitness’s P/S multiple of 1.5x. While this may not be a big deal, if the P/S multiple is not justified, investors could miss out on potential opportunities or ignore looming disappointments.
Check out our latest analysis for Xponential Fitness
How has Xponential Fitness been performing lately?
Xponential Fitness’s earnings growth has been slower than most other companies recently, so it’s possible that its performance is improving. One possibility is that the P/S ratio is moderate because investors believe this weak earnings performance will turn around. However, if this isn’t the case, investors may be overpaying for the stock.
If you want to know what analysts are predicting for the future, check out our free A report on Xponential Fitness.
Does Xponential Fitness have any revenue growth projections?
The only time you’ll feel comfortable seeing a P/S like Xponential Fitness’s is if the company’s growth is closely aligned with the industry.
Looking back at revenue growth over the last year, the company recorded an impressive increase of 23%. Pleasantly, growth over the past 12 months has meant revenue has increased by a total of 215% compared to three years ago, so shareholders will no doubt have welcomed these medium-term revenue growth rates.
Turning to the outlook, 11 analysts monitoring the company are forecasting a growth of 8.4% next year. With the overall industry expected to grow at 13%, the company’s earnings are expected to stagnate.
With this in mind, it’s interesting to see that Xponential Fitness’s P/S is in line with the majority of other companies. It seems most investors are willing to ignore fairly limited growth expectations and pay a high price for exposure to the stock. These prices will be difficult to sustain, as this level of earnings growth will likely eventually weigh on the share price.
What can we learn from Xponential Fitness’s P/S?
Xponential Fitness appears to be gaining popularity again as solid share price growth has brought its P/S back in line with the rest of the industry. While it’s not wise to use the price-to-sales ratio alone to decide whether to sell a stock, it can be a practical guide to a company’s future prospects.
We looked at analyst forecasts for Xponential Fitness’s earnings outlook and found that the company’s weak earnings outlook is not impacting the P/S as negatively as we would expect. At this point, we are not confident in the P/S as projected future earnings are unlikely to support more positive sentiment in the long term. This situation poses a risk to current and future investors that the stock price could fall if weak earnings growth impacts sentiment.
So what about other risks? Every company has risks. We 4 warning signs for Xponential Fitness You should know.
If you are Concerns about the strength of Xponential Fitness’ businessTo see other companies you might have missed, be sure to check out our interactive list of stocks with solid fundamentals.
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This article by Simply Wall St is general in nature. We use only unbiased methodologies to provide commentary based on historical data and analyst forecasts, and our articles are not intended as financial advice. It is not a recommendation to buy or sell stocks, and does not take into account your objectives, or your financial situation. We seek to provide long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
Valuation is complicated, but we can help make it simple.
To find out if Xponential Fitness is overvalued or undervalued, check out our comprehensive analysis. Fair value estimates, risks and warnings, dividends, insider trading, financial strength.
View your free analysis
Have feedback about this article? Concerns about the content? Please contact us directly. Or email us at editorial-team@simplywallst.com