Xerox has gotten torched over the last six months - since July 2025, its stock price has dropped 48.7% to $2.50 per share. This might have investors contemplating their next move.
Is there a buying opportunity in Xerox, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Xerox Will Underperform?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons you should be careful with XRX and a stock we'd rather own.
1. Revenue Spiraling Downwards
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Xerox struggled to consistently generate demand over the last five years as its sales dropped at a 2.6% annual rate. This was below our standards and signals it’s a low quality business.
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Xerox, its EPS declined by 15.6% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
3. High Debt Levels Increase Risk
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Xerox’s $4.41 billion of debt exceeds the $479 million of cash on its balance sheet. Furthermore, its 8× net-debt-to-EBITDA ratio (based on its EBITDA of $478 million over the last 12 months) shows the company is overleveraged.
At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Xerox could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.
We hope Xerox can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.
Final Judgment
We see the value of companies helping their customers, but in the case of Xerox, we’re out. After the recent drawdown, the stock trades at 3× forward P/E (or $2.50 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d recommend looking at the most dominant software business in the world.
Stocks We Would Buy Instead of Xerox
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