Why did Bill Holdings stock price fall 17% in May?

Bill Holdings (Bill 1.99%) The stock fell 16.5% last month, according to data from S&P Global Market Intelligence. The financial software provider delivered a stellar quarterly earnings report, but investors were distracted by some of the underlying data. There is hesitation in the market as the company’s forecasts show it will continue to see slowing growth and net losses.

Strong quarterly results did not satisfy investors

The month got off to a rough start when Bill Holdings reported its quarterly earnings on May 2nd. It achieved revenue growth of 19%, which exceeded analysts’ consensus estimates for both revenue and earnings. The company also beat its own internal forecasts for revenue and adjusted profits.

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Despite this positive traction, the stock declined following the financial report. Bill’s full-year outlook has improved after a solid third-quarter fiscal, but his fourth-quarter forecast suggests slowing sales growth. Amid macroeconomic pressures, slowing growth became a problem and stock prices plummeted as a result.

BILL Revenue (Quarterly YOY Growth) data from YCharts

Bill Holdings also lowered its full-year adjusted profit forecast. This is largely due to the Company’s decision to apply income tax assumptions to the forecast that were not included in previous calculations. There are also concerns about the continued challenging small business environment. High interest rates and relatively weak economic growth threaten Bill’s clients. This is not optimistic for a company with slowing growth and some debt on its balance sheet. These problems were made worse when prominent analysts downgraded their forecasts in response to the update, citing ongoing pressure.

Bill’s valuation may be too cheap to ignore.

While Bill has some clear near-term challenges to overcome, the negative sentiment surrounding the stock could create opportunities for value hunters. The stock’s forward P/E ratio is 22. Although sales growth may be in the 10% range, free cash flow is significantly outpacing sales. If your price-to-cash flow ratio is below 20, another strong year could push that ratio up to 10 at the current stock price.

BILL P/E Ratio (Forward) Data from YCharts

Bill Holdings has lost popularity and its stock price reflects investors’ gloomy expectations. The recent decline already signals a major setback in financial performance, so it could be an opportunity to purchase stocks of blue-chip companies at a discount.