BuzzFeed, Inc.'s (NASDAQ:BZFD) Price Is Right But Growth Is Lacking
BuzzFeed, Inc.'s (NASDAQ:BZFD) price-to-sales (or "P/S") ratio of 0.1x might make it look like a buy right now compared to the Interactive Media and Services industry in the United States, where around half of the companies have P/S ratios above 1.3x and even P/S above 4x 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 BuzzFeed
How BuzzFeed Has Been Performing
BuzzFeed could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.
Keen to find out how analysts think BuzzFeed'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 BuzzFeed?
There's an inherent assumption that a company should underperform the industry for P/S ratios like BuzzFeed's to be considered reasonable.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 21%. Regardless, revenue has managed to lift by a handy 9.9% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.
Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 5.9% per annum over the next three years. With the industry predicted to deliver 12% growth per annum, the company is positioned for a weaker revenue result.
With this in consideration, its clear as to why BuzzFeed's P/S is falling short industry peers. 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 BuzzFeed's P/S?
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 expected, our analysis of BuzzFeed'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.
And what about other risks? Every company has them, and we've spotted 5 warning signs for BuzzFeed you should know about.
If you're unsure about the strength of BuzzFeed's 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.
