Yext, Inc.'s (NYSE:YEXT) Revenues Are Not Doing Enough For Some Investors

Yext, Inc.'s (NYSE:YEXT) price-to-sales (or "P/S") ratio of 1.7x might make it look like a strong buy right now compared to the Software industry in the United States, where around half of the companies have P/S ratios above 4.3x and even P/S above 11x are quite common. 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.

View our latest analysis for Yext

What Does Yext's Recent Performance Look Like?

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 this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

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

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

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period was better as it's delivered a decent 18% overall rise in revenue. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 4.3% per annum as estimated by the five analysts watching the company. With the industry predicted to deliver 17% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Yext'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.

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

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Yext maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Yext with six simple checks on some of these key factors.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.