U.S. companies are grappling with a challenging economy as high inflation and rising interest rates are pressuring household finances, which means consumers are spending less money. The knock-on effects mean even companies that serve other businesses are experiencing a slowdown in growth.
Small-business software provider Bill.com (BILL) falls into that category, but its slowdown isn’t like most others. The company is known for its lightning-quick revenue growth, and it just reported results for its fiscal 2023 full year (ended June 30). Despite the broader economic challenges, its revenue still increased an impressive 65%.
It caps off a remarkable five-year run during which Bill.com grew its revenue 16-fold. But there’s a good chance it’s not finished, and here’s why investors should buy the stock right now.
Bill.com is transforming small businesses
Bill.com is on a mission to become the central financial platform for small to mid-size businesses (SMBs). Its management says the majority of the country’s 30 million small businesses still receive and process incoming invoices using paper, which makes the accounts payable workflow incredibly slow and inefficient.
Bill.com’s flagship digital inbox streamlines that process by enabling bookkeepers to aggregate their incoming invoices online. From there, they can pay their bills with one click, and the platform automatically logs each transaction in the business’ choice of bookkeeping software. One Bill.com client — Talbott Farms, an orchard and vineyard in Colorado — says the platform saves their bookkeeper around two hours per day!
The company also made two key acquisitions in 2021 to become a truly holistic provider of financial solutions to SMBs. It bought Invoice2go, a platform for businesses to create and issue invoices digitally, which speeds up the accounts receivable process. And it acquired Divvy for expense-management and budgeting software.
At the end of fiscal 2023, 461,000 businesses were using Bill.com software. And over 7,000 accounting firms, including 85 of the nation’s top 100, use it to manage their clients’ finances.
Bill.com’s revenue has soared over the last five years
Bill.com has two core sources of revenue. The majority comes from transactions, with the company earning a small fee each time a business makes a payment on its platform. In fiscal 2023, it processed $266 billion in payments, equivalent to 1% of the U.S. gross domestic product.
The other core source of revenue comes from recurring subscription payments for the use of Bill.com’s software.
In fiscal 2023, the company generated $1.05 billion in total revenue, 65% higher compared to fiscal 2022 and above its forecast. Investors are used to Bill.com’s strong revenue growth, and while 65% was a slowdown from last year, it’s still an impressive result in this tough economy. The big picture shows the company has increased sales by over 1,500% since fiscal 2018.
Bill.com also generated its first-ever annual adjusted profit in fiscal 2023. Adjusted net income was $194 million, or $1.67 in earnings per share.
The company still lost $295 million under generally accepted accounting principles (GAAP), but the adjusted number is important because it eliminates non-cash expenses to give an idea of how the actual business is performing. For example, Bill.com issued $319 million in stock-based compensation during fiscal 2023, which is tacked onto its GAAP net loss even though it’s not a cash-based expense.
Why Bill.com stock is a screaming buy
Despite the company’s incredible progress over the last few years, the best growth might still be ahead.
As I mentioned, the company serves around 461,000 businesses at the moment, but it estimates there are more than 70 million in its addressable market worldwide. And after processing $266 billion in payments in fiscal 2023, the company is targeting a global opportunity worth $125 trillion!
Investors sent Bill.com stock higher 9% higher after the company reported its fiscal 2023 results, but the stock is still down 66% from its all-time high, which was logged during the tech frenzy of 2021. The combination of a falling stock price and rapidly growing revenue means its valuation — measured by its price-to-sales (P/S) ratio — has declined significantly.
As of this writing, the stock has a P/S of 11.1. That’s near the cheapest level since the company went public in 2019, and it’s 85% below its peak P/S of 74.9. I’m not suggesting it will revisit that level in the future, but the pace with which Bill.com continues to grow (especially relative to other software companies) likely warrants a higher valuation.
The newfound adjusted profitability and positive free cash flow of $157 million in fiscal 2023 considerably de-risk the stock because they reduce the chance of a future capital raise, especially considering the company has $2.6 billion in cash, equivalents, and short-term investments on its balance sheet.
As a result, investors who buy Bill.com stock today might be very pleased when they look back on its current price a few years from now.
— Anthony Di Pizio
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Source: The Motley Fool