1 Growth Stock Down 85% You’ll regret not buying on the dip

Enterprise software was one of the hottest segments of the tech sector in 2021. Capital was cheap thanks to record low interest rates, and software companies were spending it on marketing and product development to generate revenue growth, even if it meant they lost money. to the bottom line.

But the era of cheap money is over, and most software companies prioritize profitability. They are cutting costs, which is hurting their revenue growth, and that has forced investors to reassess their valuations.

Bill.com (BILL 5.10%) offers a portfolio of software products for small and medium-sized enterprises (SMEs). Its stock price is down 85% from its all-time high, but here’s why it looks like a bargain right now, based on a widely used valuation measure.

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Essential tools for small and medium businesses

Small business owners tend to wear many hats. In addition to managing day-to-day operations, they also handle marketing, product development, and even accounting. Bill.com’s software can handle some of this burden because it’s designed to streamline your accounts payable, receivable, and expense management workflows.

Bill.com’s flagship product is a cloud-based digital inbox that collects incoming bills. Bill.com automatically routes each invoice to the appropriate person for approval, and the invoice can then be paid with a single click. In addition, thanks to integrations with leading accounting platforms, every transaction is automatically recorded in the books.

Bill.com also developed an accounts receivable solution after acquiring Invoice2go in 2021. It allows businesses to create and send invoices, track them, and track incoming payments. The company says this solution helps its customers get paid twice as fast.

At the end of fiscal year 2024 (ended June 30), Bill.com had 474,600 business customers in its product portfolio. As of 2018, the company has processed over $1 trillion worth of payments on behalf of its customers, making it one of the largest business-to-business payment platforms in the world.

These nearly half a million customers represent just a fraction of Bill.com’s global opportunity, which consists of more than 70 million SMBs globally and $125 trillion in payments volume. The company plans to capture more of this market by leveraging its network of more than 8,000 leading accounting firms, its largest customer acquisition channel. Accountants encourage their business clients to use Bill.com because it simplifies their jobs, so it’s a win-win.

Bill.com continues to make progress on the bottom line

Bill.com generated total revenue of $1.29 billion in fiscal 2024, which was a solid 22% growth. But that was much slower than in fiscal 2023, when revenue grew 65 percent, and fiscal 2022, when growth was a staggering 169 percent.

As already mentioned, Bill.com carefully manages costs to improve its bottom line. It increased its operating expenses by just 6% year-over-year during fiscal 2024, and in fact haircut its marketing expenses by 7.2%. Simply put, investing less money in growth-oriented initiatives makes it very difficult to grow revenue as quickly.

But on the positive side, Bill.com is making substantial progress on the bottom line. According to generally accepted accounting principles (GAAP), the company still generated a net loss of $28.8 million in fiscal 2024, but that was a significant improvement from the net loss of $223.7 million in fiscal 2023. In addition, it actually generated a net loss of $223.7 million. advantage of USD 7.5 million in the last quarter of the year.

On a non-GAAP (adjusted) basis, which excludes one-time and non-cash expenses such as stock-based compensation, Bill.com generated net income of $243.9 million in fiscal 2024, an increase of 54, 8% from fiscal year 2023.

Bill.com stock looks like an excellent value

The 85% drop in Bill.com’s stock, combined with the company’s continued growth, puts it at an attractive level as measured by a widely used valuation metric.

Based on Bill.com’s market cap of $5.7 billion and its fiscal 2024 revenue of $1.29 billion, its stock trades at a price-to-sales (P/S) ratio of 4.4. That’s an 85% discount to the average P/S ratio of 31.2 since the company went public in 2019.

Bill.com’s average P/S ratio is quite high, so I’m not suggesting it will go back there — the average is heavily skewed by the tech frenzy of 2021, when the stock was trading at a P/S above 90. However , Bill’s current P/S ratio also looks cheap when measured against a basket of other enterprise-to-enterprise software stocks:

PS report data by YCharts

Additionally, based on Bill.com’s fiscal 2024 non-GAAP earnings per share of $2.12 and the current stock price of $53.48, it trades at a price-to-earnings (P/E) ratio of 25.2. For a given context, Nasdaq-100 Technology Sector the index trades at 32 times GAAP earnings. This isn’t a perfect comparison because of all the adjustments needed to calculate non-GAAP earnings, but it can be a useful benchmark until Bill.com further improves its GAAP bottom line.

With all that said, Bill.com stock looks attractive right now. The company forecasts a further slowdown in revenue growth during fiscal 2025, but could also benefit from tailwinds over the next 12 months, such as lower interest rates. Lower rates can be particularly positive for SMEs, as they often rely on debt to fuel their growth more than their larger peers. Therefore, Bill.com could see higher software spending among its core customer base.

Given Bill.com’s enormous addressable market, this could be a great entry point for investors who are willing to hold the stock for the long term.