ZipRecruiter, Inc. (NYSE:ZIP) Shares May Have Slumped 28% But Getting In Cheap Is Still Unlikely

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ZipRecruiter, Inc. (NYSE:ZIP) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 54% loss during that time.

Even after such a large drop in price, there still wouldn't be many who think ZipRecruiter's price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S in the United States' Interactive Media and Services industry is similar at about 1.1x. 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.

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Check out our latest analysis for ZipRecruiter

How ZipRecruiter Has Been Performing

ZipRecruiter 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 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.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

There's an inherent assumption that a company should be matching the industry for P/S ratios like ZipRecruiter's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 21% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 45% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 0.1% over the next year. That's shaping up to be materially lower than the 15% growth forecast for the broader industry.

In light of this, it's curious that ZipRecruiter's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

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

ZipRecruiter's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

Our look at the analysts forecasts of ZipRecruiter's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for ZipRecruiter (2 are a bit unpleasant) you should be aware 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.