Some Shareholders Feeling Restless Over ZipRecruiter, Inc.'s (NYSE:ZIP) P/S Ratio

With a median price-to-sales (or "P/S") ratio of close to 1.2x in the Interactive Media and Services industry in the United States, you could be forgiven for feeling indifferent about ZipRecruiter, Inc.'s (NYSE:ZIP) P/S ratio of 1.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for ZipRecruiter

What Does ZipRecruiter's P/S Mean For Shareholders?

ZipRecruiter 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 its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For ZipRecruiter?

The only time you'd be comfortable seeing a P/S like ZipRecruiter's is when the company's growth is tracking the industry closely.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 31%. As a result, revenue from three years ago have also fallen 21% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 6.5% during the coming year according to the seven analysts following the company. That's not great when the rest of the industry is expected to grow by 13%.

In light of this, it's somewhat alarming that ZipRecruiter's P/S sits in line with the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh 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.

While ZipRecruiter's P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

We don't want to rain on the parade too much, but we did also find 4 warning signs for ZipRecruiter (2 are significant!) that you need to be mindful of.

If these risks are making you reconsider your opinion on ZipRecruiter, 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.