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

Yext, Inc. (NYSE:YEXT) shares have had a horrible month, losing 26% after a relatively good period beforehand. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 16%.

Following the heavy fall in price, Yext may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 2x, considering almost half of all companies in the Software industry in the United States have P/S ratios greater than 5.6x and even P/S higher than 13x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for Yext

What Does Yext's P/S Mean For Shareholders?

Recent times haven't been great for Yext as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Yext will help you uncover what's on the horizon.

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

Yext's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Regardless, revenue has managed to lift by a handy 7.1% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 5.9% each year over the next three years. That's shaping up to be materially lower than the 21% each year growth forecast for the broader industry.

With this information, we can see why Yext is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Yext's P/S?

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

As expected, our analysis of Yext's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for Yext you should be aware of.

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