RingCentral trades at $26.39 and has moved in lockstep with the market. Its shares have returned 16.6% over the last six months while the S&P 500 has gained 21.1%.
Is there a buying opportunity in RingCentral, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.
Why Do We Think RingCentral Will Underperform?
We're sitting this one out for now. Here are three reasons we avoid RNG and a stock we'd rather own.
1. Weak Billings Point to Soft Demand
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.
RingCentral’s billings came in at $634.7 million in Q2, and over the last four quarters, its year-on-year growth averaged 5%. This performance was underwhelming and suggests that increasing competition is causing challenges in acquiring/retaining customers. 
2. Projected Revenue Growth Is Slim
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 RingCentral’s revenue to rise by 5.1%, a slight deceleration versus its 18.9% annualized growth for the past five years. This projection is underwhelming and suggests its products and services will see some demand headwinds.
3. Long Payback Periods Delay Returns
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
RingCentral’s recent customer acquisition efforts haven’t yielded returns as its CAC payback period was negative this quarter, meaning its incremental sales and marketing investments outpaced its revenue. The company’s inefficiency indicates it operates in a highly competitive environment where there is little differentiation between RingCentral’s products and its peers.
Final Judgment
RingCentral doesn’t pass our quality test. That said, the stock currently trades at 0.9× forward price-to-sales (or $26.39 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 suggest looking at one of our top digital advertising picks.
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