3 Reasons to Avoid GTM and 1 Stock to Buy Instead

ZoomInfo’s stock price has taken a beating over the past six months, shedding 66.4% of its value and falling to $3.41 per share. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.

Is there a buying opportunity in ZoomInfo, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think ZoomInfo Will Underperform?

Even with the cheaper entry price, we don’t have much confidence in ZoomInfo. Here are three reasons why GTM doesn’t excite us, plus one stock we’d rather own.

1. Billings Hit a Plateau

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Over the last year, ZoomInfo failed to grow its billings, which came in at $311.6 million in the latest quarter. This performance was underwhelming and shows the company faced challenges in acquiring and retaining customers. It also suggests there may be increasing competition or market saturation.

2. Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect ZoomInfo’s revenue to drop by 5.9%, a decrease from its 18.8% annualized growth for the past five years. This projection doesn’t excite us and suggests its products and services will face some demand challenges.

3. Cash Flow Margin Set to Decline

Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Over the next year, analysts predict ZoomInfo’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 35.9% for the last 12 months will decrease to 32.7%.

Final Judgment

ZoomInfo doesn’t pass our quality test. Following the recent decline, the stock trades at 0.8× forward price-to-sales (or $3.41 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d recommend looking at a dominant aerospace business that has perfected its M&A strategy.

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