Expensify, Inc.'s (NASDAQ:EXFY) Shares Bounce 28% But Its Business Still Trails The Industry

Despite an already strong run, Expensify, Inc. (NASDAQ:EXFY) shares have been powering on, with a gain of 28% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 49% in the last twelve months.

In spite of the firm bounce in price, Expensify may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.5x, considering almost half of all companies in the Software industry in the United States have P/S ratios greater than 4.6x and even P/S higher than 11x aren't out of the ordinary. 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 Expensify

How Has Expensify Performed Recently?

Expensify 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. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

How Is Expensify's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 16% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 23% 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.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 8.0% each year over the next three years. With the industry predicted to deliver 19% growth each year, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Expensify's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Expensify's P/S

Expensify's recent share price jump still sees fails to bring its P/S alongside the industry median. 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.

We've established that Expensify maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Expensify (at least 1 which doesn't sit too well with us), and understanding them should be part of your investment process.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.