Investors Don't See Light At End Of 8x8, Inc.'s (NASDAQ:EGHT) Tunnel And Push Stock Down 28%

Unfortunately for some shareholders, the 8x8, Inc. (NASDAQ:EGHT) share price has dived 28% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 54% share price decline.

Following the heavy fall in price, 8x8 may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.3x, since almost half of all companies in the Software industry in the United States have P/S ratios greater than 4.8x and even P/S higher than 11x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for 8x8

How Has 8x8 Performed Recently?

8x8 could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Keen to find out how analysts think 8x8's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For 8x8?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like 8x8's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 2.2% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 29% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Turning to the outlook, the next year should generate growth of 0.1% as estimated by the eleven analysts watching the company. That's shaping up to be materially lower than the 21% growth forecast for the broader industry.

In light of this, it's understandable that 8x8's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

8x8's P/S looks about as weak as its stock price lately. 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.

As we suspected, our examination of 8x8's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for 8x8 that you should be aware of.

If these risks are making you reconsider your opinion on 8x8, 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.