The Market Doesn't Like What It Sees From Zoomd Technologies Ltd.'s (CVE:ZOMD) Revenues Yet As Shares Tumble 29%

To the annoyance of some shareholders, Zoomd Technologies Ltd. (CVE:ZOMD) shares are down a considerable 29% in the last month, which continues a horrid run for the company. Regardless, last month's decline is barely a blip on the stock's price chart as it has gained a monstrous 683% in the last year.

Following the heavy fall in price, Zoomd Technologies' price-to-sales (or "P/S") ratio of 0.6x might make it look like a strong buy right now compared to the wider Software industry in Canada, where around half of the companies have P/S ratios above 2.7x and even P/S above 9x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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See our latest analysis for Zoomd Technologies

How Zoomd Technologies Has Been Performing

Zoomd Technologies certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Zoomd Technologies will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Zoomd Technologies will help you shine a light on its historical performance.

How Is Zoomd Technologies' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Zoomd Technologies' is when the company's growth is on track to lag the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 70%. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 59% shows it's noticeably less attractive.

With this in consideration, it's easy to understand why Zoomd Technologies' P/S falls short of the mark set by its industry peers. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Key Takeaway

Shares in Zoomd Technologies have plummeted and its P/S has followed suit. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

In line with expectations, Zoomd Technologies maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Zoomd Technologies that you should be aware of.

If these risks are making you reconsider your opinion on Zoomd Technologies, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.