ZoomInfo Technologies Inc. (NASDAQ:ZI) Shares May Have Slumped 33% But Getting In Cheap Is Still Unlikely

ZoomInfo Technologies Inc. (NASDAQ:ZI) shareholders that were waiting for something to happen have been dealt a blow with a 33% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 56% share price decline.

In spite of the heavy fall in price, you could still be forgiven for thinking ZoomInfo Technologies is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.4x, considering almost half the companies in the United States' Interactive Media and Services industry have P/S ratios below 1.4x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for ZoomInfo Technologies

How Has ZoomInfo Technologies Performed Recently?

With revenue growth that's inferior to most other companies of late, ZoomInfo Technologies has been relatively sluggish. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on ZoomInfo Technologies will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For ZoomInfo Technologies?

In order to justify its P/S ratio, ZoomInfo Technologies would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 2.8% last year. This was backed up an excellent period prior to see revenue up by 109% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 4.6% per year over the next three years. 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. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. 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.

What Does ZoomInfo Technologies' P/S Mean For Investors?

ZoomInfo Technologies' P/S remain high even after its stock plunged. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It comes as a surprise to see ZoomInfo Technologies trade at such a high P/S given the revenue forecasts look less than stellar. 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. At these price levels, investors should remain cautious, particularly if things don't improve.

Plus, you should also learn about these 3 warning signs we've spotted with ZoomInfo Technologies.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com