ZoomInfo Technologies Inc.'s (NASDAQ:ZI) 33% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

ZoomInfo Technologies Inc. (NASDAQ:ZI) shareholders won't be pleased to see that the share price has had a very rough month, dropping 33% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 51% share price decline.

Even after such a large drop 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 2.2x, considering almost half the companies in the United States' Interactive Media and Services industry have P/S ratios below 0.8x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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See our latest analysis for ZoomInfo Technologies

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

ZoomInfo Technologies could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. 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.

Keen to find out how analysts think ZoomInfo Technologies' future stacks up against the industry? In that case, our free report is a great place to start .

Do Revenue Forecasts Match The High P/S Ratio?

ZoomInfo Technologies' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered a frustrating 2.0% decrease to the company's top line. Still, the latest three year period has seen an excellent 63% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 2.9% per year during the coming three years according to the analysts following the company. With the industry predicted to deliver 12% growth each year, the company is positioned for a weaker revenue result.

With this information, we find it concerning that ZoomInfo Technologies is trading at a P/S higher than the industry. 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. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

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

There's still some elevation in ZoomInfo Technologies' P/S, even if the same can't be said for its share price recently. 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.

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. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for ZoomInfo Technologies that you should be aware 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.