Shareholders of RingCentral would probably like to forget the past six months even happened. The stock dropped 20.4% and now trades at $26.69. This might have investors contemplating their next move.

Is now the time to buy RingCentral, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Is RingCentral Not Exciting?

Even with the cheaper entry price, we're cautious about RingCentral. Here are three reasons why RNG doesn't excite us 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 $598.9 million in Q1, and over the last four quarters, its year-on-year growth averaged 6.7%. 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 4.9%, a deceleration versus This projection doesn't excite us and indicates its products and services will face some demand challenges.

3. Long Payback Periods Delay Returns

The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.

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 isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 0.9× forward price-to-sales (or $26.69 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now. We’d suggest looking at the most entrenched endpoint security platform on the market.

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