Xerox (XRX - Get Report) is a very different company today than it was just a few years ago. In that short time, the firm has distanced itself from its legacy copier business, adding lucrative services like document management to its repertoire. The transition hasn't been without speed bumps, though, and that's a big part of the reason why XRX trades for a paltry price-to-book ratio of 1.03.
Printing has become commoditized in the last few years. Print quality has essentially become the same across most major black and white laser printer manufacturers, so Xerox has focused its resources on areas where it can build an economic moat. Today, Xerox earns just 40% of sales from printer and copier sales. Between document management, business services, and consumables like toner, Xerox earns the majority of its sales and that's helped shove net margins into the mid-single digits. As the legacy business becomes a smaller piece of the puzzle, margins should continue to grow.
Xerox does have a noticeable amount of leverage on its balance sheet -- approximately $6 billion worth of net long-term debt. But that number has come down in each of the last several years, as the firm works to lighten its income statement load each quarter. Between strong momentum and a cheap price tag (XRX currently trades for just 11.8 times earnings), value-conscious investors would do well to pay attention to Xerox's new business.