ZoomInfo Technologies Inc. (ZI) in Vancouver, Wash., is a market intelligence and engagement platform that operates internationally. Shares of ZI have been slumping in price lately as institutional investors and insiders have been selling their holdings.

The stock declined 15% over the past month, despite the company reporting better-than-expected third-quarter results.

Click here to check out our Software Industry Report for 2021

Here is  what could shape ZI’s performance in the near term:

Insider Trading

Major shareholders and management have been selling shares of ZI of late . Its COO Joseph Christopher Hays sold 60,752 shares of ZI on December 6 for $3.60 million. And institutional shareholder Carlyle Group has sold more than 1 million shares of ZI so far this month. This activity may indicate management’s and major shareholders' declining confidence in the company.

Solvency Concerns

Over the past year, ZI has acquired three companies, namely RingLead, Insent, and Chorus.ai, to fuel its growth. While the financial terms for two of these acquisitions were not disclosed, ZI acquired Chorus.ai for $575 million in an all-cash transaction. This is expected to affect the company’s cash holdings and liquidity. Its trailing-12-month total cash balance stands at $233 million. However, with $1.08 billion in trailing-12-month net debt , ZI’s book value per share is negative.

In its periodic credit rating review, Moody’s stated that ZI lacks product and geographic diversification and operates within the highly competitive sales intelligence data market given the presence of large and small providers with relatively low barriers to entry. Also, the company’s high debt-to-EBITDA ratio due to its recent acquisitions is a cause for concern. While Moody expects ZI’s revenues to rise in the near term, its growth is subject to cyclical client spending.

Stretched Valuation

In terms of forward non-GAAP P/E, ZI is currently trading at 121.57x, which is 582.5% higher than the 17.81x industry average. And its 3.75 forward non-GAAP PEG multiple is 175.7% higher than the 1.35 industry average.

Also, ZI is currently trading at 34.52 times its Sales, which is 1920.2% higher than the 1.71 industry average. The stock’s forward EV/EBITDA and Price/Cash Flow ratios of 87.34 and 69.09, respectively, are significantly higher than the 9.65 and 10.04 industry averages.

POWR Ratings Reflect Bleak Prospects

ZI has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

ZI has a D grade for Value and Stability. Its higher-than-industry valuation is in sync with the Value grade. In addition, the stock’s 1.20 beta justifies the Stability grade.

Of the 168 stocks in the F-rated Software – Application industry, ZI is ranked #118.

In addition to the grades I have highlighted, view ZI ratings for Growth, Sentiment, Momentum, and Quality here.

Click here to check out our Software Industry Report for 2021

Bottom Line

ZI’s revenues rose 60% year-over-year to $197.60 million. However, its net loss per share stood at 0.13. Its cash flow from operating activities declined 5% year-over-year to $46.50 million. Moreover, the sale of their holdings of the company’s stock by institutional investors and insiders is a bearish indicator. Given ZI’s weak profit margins and stretched valuation, we think the stock is best avoided now.

How Does ZoomInfo Technologies Inc. (ZI) Stack Up Against its Peers?

While ZI has a D rating in our proprietary rating system, one might want to consider looking at its industry peers, Open Text Corporation (OTEX), Commvault Systems, Inc. (CVLT), and Progress Software Corporation (PRGS), which have an A (Strong Buy) rating.

ZI shares were trading at $63.36 per share on Friday morning, up $0.45 (+0.72%). Year-to-date, ZI has gained 31.37%, versus a 26.72% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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