Yahoo Finance Why Investors Shouldn't Be Surprised By Yext, Inc.'s (NYSE:YEXT) Low P/S
Yext, Inc.'s (NYSE:YEXT) price-to-sales (or "P/S") ratio of 2.4x might 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 4.3x and even P/S above 9x 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 Yext
How Yext Has Been Performing
Yext could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. 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.
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.
Is There Any Revenue Growth Forecasted For Yext?
The only time you'd be truly comfortable seeing a P/S as low as Yext's is when the company's growth is on track to lag the industry.
Retrospectively, the last year delivered a decent 2.6% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 34% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Looking ahead now, revenue is anticipated to climb by 4.0% each year during the coming three years according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 13% per year, which is noticeably more attractive.
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.
The Bottom Line On Yext's P/S
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 we suspected, our examination of Yext's 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. It's hard to see the share price rising strongly in the near future under these circumstances.
You should always think about risks. Case in point, we've spotted 1 warning sign for Yext you should be aware of.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.
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