Revenues Working Against Expensify, Inc.'s (NASDAQ:EXFY) Share Price Following 26% Dive

To the annoyance of some shareholders, Expensify, Inc. (NASDAQ:EXFY) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Looking at the bigger picture, even after this poor month the stock is up 30% in the last year.

Following the heavy fall in price, Expensify's price-to-sales (or "P/S") ratio of 1.4x might make it look like a strong buy right now compared to the wider Software industry in the United States, where around half of the companies have P/S ratios above 4.6x and even P/S above 10x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Our free stock report includes 2 warning signs investors should be aware of before investing in Expensify. Read for free now.

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. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. 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.

Is There Any Revenue Growth Forecasted For Expensify?

In order to justify its P/S ratio, Expensify would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 1.6%. As a result, revenue from three years ago have also fallen 7.6% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 4.8% over the next year. With the industry predicted to deliver 15% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Expensify is trading at a P/S lower than the industry. 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

Having almost fallen off a cliff, Expensify's share price has pulled its P/S way down as well. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

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.

Plus, you should also learn about these 2 warning signs we've spotted with Expensify.

If you're unsure about the strength of Expensify's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.