Yahoo Finance ZoomInfo Technologies Inc.'s (NASDAQ:ZI) Popularity With Investors Is Clear
ZoomInfo Technologies Inc.'s (NASDAQ:ZI) price-to-sales (or "P/S") ratio of 8.2x may look like a poor investment opportunity when you consider close to half the companies in the Interactive Media and Services industry in the United States have P/S ratios below 1.6x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for ZoomInfo Technologies
How ZoomInfo Technologies Has Been Performing
With revenue growth that's superior to most other companies of late, ZoomInfo Technologies has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying to much for the stock.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on ZoomInfo Technologies.
Do Revenue Forecasts Match The High P/S Ratio?
ZoomInfo Technologies' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 47%. The strong recent performance means it was also able to grow revenue by 274% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 19% each year as estimated by the analysts watching the company. With the industry only predicted to deliver 10% per annum, the company is positioned for a stronger revenue result.
With this information, we can see why ZoomInfo Technologies is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Key Takeaway
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.
Our look into ZoomInfo Technologies shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for ZoomInfo Technologies that 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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