Investors Don't See Light At End Of BILL Holdings, Inc.'s (NYSE:BILL) Tunnel And Push Stock Down 26%

To the annoyance of some shareholders, BILL Holdings, Inc. (NYSE:BILL) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The recent drop has obliterated the annual return, with the share price now down 2.0% over that longer period.

In spite of the heavy fall in price, BILL Holdings' price-to-sales (or "P/S") ratio of 4.5x might still make it look like a buy right now compared to the Software industry in the United States, where around half of the companies have P/S ratios above 5.7x and even P/S above 13x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for BILL Holdings

What Does BILL Holdings' Recent Performance Look Like?

BILL Holdings' revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. Those who are bullish on BILL Holdings will be hoping that this isn't the case.

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

Do Revenue Forecasts Match The Low P/S Ratio?

BILL Holdings' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered an exceptional 16% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 236% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 16% each year as estimated by the analysts watching the company. That's shaping up to be materially lower than the 20% per year growth forecast for the broader industry.

In light of this, it's understandable that BILL Holdings' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From BILL Holdings' P/S?

The southerly movements of BILL Holdings' shares means its P/S is now sitting at a pretty low level. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of BILL Holdings' 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. The company will need a change of fortune to justify the P/S rising higher in the future.

We don't want to rain on the parade too much, but we did also find 3 warning signs for BILL Holdings (1 shouldn't be ignored!) that you need to be mindful of.

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

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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.