To the annoyance of some shareholders, Xos, Inc. (NASDAQ:XOS) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 47% in that time.

After such a large drop in price, Xos may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.5x, since almost half of all companies in the Machinery industry in the United States have P/S ratios greater than 1.9x and even P/S higher than 4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

What Does Xos' Recent Performance Look Like?

Xos hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Keen to find out how analysts think Xos' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as low as Xos' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a frustrating 17% decrease to the company's top line. Still, the latest three year period has seen an excellent 68% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 17% each year during the coming three years according to the two analysts following the company. That's shaping up to be materially higher than the 5.5% per annum growth forecast for the broader industry.

With this in consideration, we find it intriguing that Xos' 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.

The Key Takeaway

Xos' P/S has taken a dip along with its share price. 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 Xos' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

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.

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.