Investors Don't See Light At End Of Zoomd Technologies Ltd.'s (CVE:ZOMD) Tunnel And Push Stock Down 29%

Zoomd Technologies Ltd. (CVE:ZOMD) shares have had a horrible month, losing 29% after a relatively good period beforehand. The good news is that in the last year, the stock has shone bright like a diamond, gaining 274%.

After such a large drop in price, Zoomd Technologies may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.9x, since almost half of all companies in the Software industry in Canada have P/S ratios greater than 3.7x and even P/S higher than 10x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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See our latest analysis for Zoomd Technologies

What Does Zoomd Technologies' Recent Performance Look Like?

Recent times have been advantageous for Zoomd Technologies as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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How Is Zoomd Technologies' Revenue Growth Trending?

In order to justify its P/S ratio, Zoomd Technologies would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 86%. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Shifting to the future, estimates from the one analyst covering the company suggest revenue should grow by 24% per annum over the next three years. That's shaping up to be materially lower than the 34% each year growth forecast for the broader industry.

With this in consideration, its clear as to why Zoomd Technologies' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Zoomd Technologies' P/S

The southerly movements of Zoomd Technologies' shares means its P/S is now sitting at a pretty low level. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Zoomd Technologies maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Zoomd Technologies that you need to be mindful of.

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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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.