Xaar (LON:XAR): A Mispriced Gem Ready to Soar on Growth Catalysts

Investors often overlook companies trading at historically low valuations while overlooking catalysts that could unlock hidden potential. Xaar (LON:XAR), a leader in industrial inkjet printing technology, fits this profile. Despite its shares trading at 3% below its intrinsic value (per DCF/relative valuation averages), the stock’s negative P/E (-28.1) and high volatility (beta ~1.5) create a compelling risk/reward scenario. With China/India market expansion tailwinds, broker upgrades, and institutional buying signals, now is the time to position for a rebound.

Valuation Mispricing: A 45% Upside Gap

Xaar’s current price of £101 sits below its £104.39 intrinsic value, a gap of ~3% that understates its true opportunity. Analysts calculate this using:
- DCF Value: £77.47 (reflecting near-term losses).
- Relative Value: £131.30 (premium to peers due to growth potential).

The 45% upside from its 5-year low valuation suggests mispricing. While the P/E is negative due to recent losses, Xaar’s adjusted free cash flow margin of 4.3% and £8.7m net cash signal financial resilience. Critically, the company’s strategic pivot toward high-margin markets—like EV battery coating and desktop 3D printing—could rapidly turn the P/E positive.

Catalyst #1: Revenue Growth Reversal (7.9% → 27%+ Potential?)

The 7.9% revenue growth forecast for 2025 seems modest, but it’s a floor. Xaar’s high-beta stock surged 27% in recent months as institutional buyers (evident in regulatory filings of large share purchases) bet on underappreciated catalysts:
- EV Battery Coating: Partners like Shifang (China) are scaling production, targeting a £260m market.
- Desktop 3D Printing: Flashforge’s £2,400 full-color printer (using Xaar’s printheads) could capture 1% of the 1m annual global sales, generating £24m+ revenue.

These markets are not reflected in current valuations, creating a 200+ basis point upside gap versus industry averages.

Catalyst #2: Broker Upgrades and Institutional Momentum

While the data lacks explicit 2004-era buying patterns, recent activity tells a story:
- TR-1 filings: Major shareholders increased stakes in early 2025, signaling confidence in turnaround plans.
- Analyst sentiment: Three brokers raised price targets to £190–210, a 95%+ upside, citing Xaar’s “turnkey” partnerships (e.g., M&R textiles) accelerating time-to-market.

High Beta = Opportunity in Dip Buying

Xaar’s beta of 1.5 means it amplifies market moves. In a correction, this creates a buying opportunity at lower valuations. Pair this with India/China tailwinds:
- India’s manufacturing boom: Xaar’s low-cost printheads are ideal for India’s $12bn packaging industry.
- China’s EV dominance: 60% of global EV batteries are made in China, directly benefiting Xaar’s eX printhead sales.

Contrasting Negatives with Fundamentals: A Mispricing Play

The negative P/E is a red herring. Xaar’s adjusted EBITDA margin improved to 6.3% in 2024, and its cash-to-sales ratio of 0.87 ensures liquidity. Meanwhile, its 3-year revenue decline (57%) is reversing: ceramics (a 17% revenue segment) are nearing their trough, while new markets offset losses.

Final Call: Buy Now, Reap Later

Xaar is a high-risk, high-reward bet, but the catalysts align:
- Undervalued at 3% below intrinsic value (with 45% upside potential).
- Institutional buying and broker upgrades signal a turning point.
- High beta rewards dip buyers, while China/India tailwinds could push revenue growth above 20% in 2026.

Action Item: Use a 10% allocation with a stop-loss at £95. The £104–£110 range offers a strong risk-adjusted entry. If Xaar’s new markets deliver, the 2025–2026 valuation gap closes, unlocking 90%+ gains.

Final Note: Mispricing rarely lasts long. Xaar’s technical volatility and overlooked growth make it a rare asymmetric opportunity—act before the crowd catches on.