About Xerox
For those who don’t know much about Norwalk, Connecticut-headquartered Xerox Corporation, today won’t be one of those days where you say you didn’t learn something new.
Even if you are actually learning something new through this article, it still hardly excuses the fact that Xerox is kind of a boring, plain business, which certainly isn’t a bad thing, as we largely favor well established, tenured companies that are intent on sticking to what has worked in the past and emulating it (while innovating, of course) moving forward.
At the same token, however, we live in a world where innovation isn’t really an option for companies anymore; it’s more of a life or death sort of thing.
As the famed chief executive at The Walt Disney Company once said, “if you don’t innovate, you die.”
Especially at the rate technology is moving, we overwhelmingly agree, especially as it pertains to companies with any sort of foothold in the business services sector.
Workday is revolutionizing human capital management (HCM) one day at a time, Salesforce has changed the way leads and sales are generated and well, Xerox has stuck to its bread and butter and from what we’ve seen, not innovated a whole lot.
What’s this company’s bread and butter anyways, you might ask?
Xerox is arguably best known for its hold in the office equipment space, as it sells printers (and supplemental materials needed to successfully operate printers, such as ink and toner), scanners as well as it offering some digital document solutions.
This company is a staple in the office space.
Which was filmed in Austin and Dallas, Texas, by the way.
Anyways, one of our initial thoughts regarding the sector as a whole was “how is Xerox going to fare as more and more individuals and businesses opt to work remotely or on a hybrid basis?”
Given that many of Xerox’s products and services are physical in nature (i.e., printers, scanners etc..), this company seems a bit exposed to a long-term trend that could potentially crush its business if it doesn’t, you guessed it, innovate.
This alone is something to consider, as the bulk of its business involves the sale of physical products and with its main sales outlets such as Office Depot laying off chunks of its workforce and closing stores at an alarming rate, Xerox ought to quicken its transition into something more promising, perhaps by further penetrating the digital document solutions (which is already a highly competitive landscape, by the way) space before it is simply too late.
At the end of the day, these are our thoughts and these are the numbers behind Xerox.
Xerox’s stock financials
Trading at a share price of $15.36 with a market capitalization of $2.41 billion and a price-to-earnings (P/E) ratio of 14.11 along with an annually distributed dividend of $1.00 on the nose, there isn’t much to dislike about Xerox thus far, as shares of its stock (NASDAQ: XRX) seem to be undervalued (on a strict price-to-earnings basis) given that its P/E ratio is notably below 20, which is generally considered to be the fair value benchmark and it dishes out an annual dividend that is yielding (at the time of this writing) 6.5%.
Moving right along to the health of this company’s balance sheet, Xerox’s executive team is in charge of around $11.5 billion in terms of total assets as well as just south of $8 billion in terms of total liabilities.
Candidly, coming into this stock analysis article we presumed Xerox’s total liabilities would be all too close to the amount of its total assets, however, this is sort of a pleasant discovery as Xerox’s executives have managed to keep the company total asset-heavy, by a fine (not great, not terrible) margin.
With regards to the company’s income statement, Xerox’s total annual revenues were flat (as expected) in both 2018 and 2019 (each year standing at around $9 billion) and subsequently dropped down to the $7 billion area code in 2020, which we certainly don’t mind giving the company some slack on, as practically the entire corporate business world was out of the office and not ordering office supplies, however, the revenue figures in the years that followed are far from confidence invoking.
Don’t call it a comeback because it just isn’t.
After 2020, Xerox’s total annual revenue (in 2021) was reported as just about the same as it was in 2020 and while we would’ve expected a little bit more of a bounce back in its latest reported revenue figure (displayed on TD Ameritrade’s platform), it was disappointing to say the least.
Namely, the company’s total annual revenue in 2022 sat at a meager $7.1 billion.
This tells us that our initial thesis regarding more and more individuals, companies and other businesses opting for remote work was accurate, probably because it costs less for said businesses and it allows for a more favorable, flexible lifestyle for employees.
This indicates, to us at least, that Xerox is starting to feel the pain of being physical product-heavy in a digitized world.
This can also be seen through the net income section of the company’s cash flow statement, given that, according to its 2021 and 2022 figures, it has experienced negative net income, perhaps due to excess inventory issues or other reasons that don’t bode well for the now and later of Xerox.
Xerox’s stock fundamentals
Since misery loves company, it’s only fitting that we briefly mention and discuss this company’s trailing twelve month (TTM) net profit margin and how it measures with respect to the industry’s average, according to the figures displayed on TD Ameritrade’s platform.
Xerox’s TTM net profit margin is pegged at a dismal -2.74% to the industry’s listed average of 22.93%.
Perhaps Xerox has had to cut its prices (and subsequently cut deeply into its profit margins) in order to deal with excess inventory or simply stay competitive in the printing and scanning arenas and perhaps the company has competition that just does it better since, evidently so, Xerox doesn’t have the most glowing track record when it comes to continuous innovation, at least from what we’ve seen so far.
Whatever the reason may be, for a company with an apparent leadership role within the aforementioned industries, this is simply disappointing and borderline unacceptable.
When it comes to the company’s TTM returns on assets and investments, Xerox’s are also both considerably lower (and negative for that matter) than the industry’s averages.
Should you buy Xerox stock?
Given the numbers, general market sentiment, the way the world is going and a few other objective factors, to us, Xerox is a company that once was in its prime but now is slowly dying off.
In wrapping up this stock analysis, we were thinking of ways in which Xerox could enhance shareholder value in the near-term and one of the first things that came into our minds was offering to sell the company, however, we just don’t think any company would want to buy Xerox and its assets and liabilities.
Maybe there are a few, but the current shape and prospects for this company are extremely underwhelming.
Additionally, it is going to be immensely challenging for Xerox to pivot digitally and attempt getting into any of the digitized, cloud-related spaces since the competition, for the most part, is just too far ahead.
While shares of this company’s stock appear to be modestly undervalued, it is our opinion that there just isn’t much value to be had by investing in this company’s stock (NASDAQ: XRX) to begin with.
Its balance sheet is in fine condition, its revenues have been generally trending downwards, its TTM net profit margin is atrocious as are its TTM returns on assets and investments, not to mention the simple fact of the matter which is the world is moving towards using less and less paper blended with the exponential rise of remote work.
Combining all of this information, we deem it most appropriate to give Xerox’s stock (NASDAQ: XRX) a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.