Getting In Cheap On ZoomInfo Technologies Inc. (NASDAQ:ZI) Is Unlikely

When close to half the companies in the Interactive Media and Services industry in the United States have price-to-sales ratios (or "P/S") below 1.2x, you may consider ZoomInfo Technologies Inc. (NASDAQ:ZI) as a stock to potentially avoid with its 3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for ZoomInfo Technologies

How ZoomInfo Technologies Has Been Performing

ZoomInfo Technologies hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on ZoomInfo Technologies.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as high as ZoomInfo Technologies' is when the company's growth is on track to outshine the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Although pleasingly revenue has lifted 84% in aggregate from three years ago, notwithstanding the last 12 months. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Looking ahead now, revenue is anticipated to climb by 1.7% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 12% each year growth forecast for the broader industry.

In light of this, it's alarming that ZoomInfo Technologies' P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Key Takeaway

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've concluded that ZoomInfo Technologies currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It is also worth noting that we have found 4 warning signs for ZoomInfo Technologies that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.