Xponential Fitness, Inc. (NYSE:XPOF) shares have had a horrible month, losing 27% after a relatively good period beforehand. The recent drop has obliterated the annual return, with the share price now down 8.1% over that longer period.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Xponential Fitness' P/S ratio of 1.3x, since the median price-to-sales (or "P/S") ratio for the Hospitality industry in the United States is also close to 1.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Xponential Fitness

What Does Xponential Fitness' P/S Mean For Shareholders?

Xponential Fitness could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Xponential Fitness will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Xponential Fitness?

Xponential Fitness' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a decent 9.0% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 145% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 7.6% per annum as estimated by the eleven analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 13% per annum, which is noticeably more attractive.

With this in mind, we find it intriguing that Xponential Fitness' P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

Xponential Fitness' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look at the analysts forecasts of Xponential Fitness' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Xponential Fitness 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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