Enterprise data connectivity platform LiveRamp Holdings, Inc. (RAMP - Get Rating) has gained 70.9% over the past year but has declined 28.8% year-to-date.

While upbeat markets following impressive job growth data released last week have led to a marginal dip in Treasury yields, the potential rise in corporate taxes—as advocated by the White House—have kept the tech stocks under pressure.

The overall dip in tech stocks, with investors shifting focus to outdoor stocks, has caused RAMP’s shares to plummet in the past couple of months. However, several intrinsic factors, including  low profitability and premium valuation, are also responsible for the recent price dip.

Click here to check out our Software Industry Report for 2021

Here’s what we think could shape RAMP’s performance in the near term:

Expansion and Industry Tailwinds

RAMP has been capitalizing on the accelerating cloud computing industry to expand its operations internationally. Given the benefits of hybrid working models and the amplification of cloud computing abilities backed by 5G, most industries are scaling their operations to adapt to a virtual ecosystem. The global cloud computing market is expected to rise at a CAGR of 18% over the next six years to hit  1.03 trillion by 2026.

Last month, the company expanded its U.S.-based partnership with OpenX to Australia, allowing local Australian marketers to use LiveRamp Authenticated Identity Infrastructure to increase audience  reach.

In February, the company acquired cloud data platform DataFleets. The acquisition allows RAMP to facilitate data collaboration while maintaining privacy through a robust privacy protection capabilities ecosystem.

Also in February, RAMP entered an industry-first partnership agreement with Media.net. The partnership aims to enhance Media.net’s ad exchange and contextual data engine to more than seven  million segments through RAMP’s proprietary technologies.

Subpar Profitability

Despite generating $429.55 million in revenues over the past year, RAMP has failed to maintain adequate profit margins. The company has generated $283.55 million in  gross profits in the trailing 12 months, translating to a gross profit margin of 66.01%. However, the company’s other profitability metrics are still poor.

The company’s trailing-12-month ebitda and net income margins were  negative 17.5% and 14.33%, respectively. Its trailing-12-month levered free cash flow margin of 5.46% is 55.8% lower than the industry average12.35%. Furthermore, RAMP’s trailing-12-month ROE, ROA and ROTC margins stood at negative 5.66%, 4.89% and 5.84%, respectively.

Premium Valuation

In terms of non-GAAP forward p/e, RAMP is currently trading at 246.23x, which is significantly higher than the industry average 26.33x. Its non-GAAP forward PEG and price/cash flow multiples of 246.23 and 167.71, respectively, are significantly higher than the 2.04 and 21.87, respective industry averages.

Also, the company’s forward price/sales ratio of 8.06 is nearly double the industry average of 4.04.

Consensus Price Target Reflects Potential Upside

Eleven Wall Street analysts have issued price targets for RAMP, with a high forecast of $90 and low forecast of $64. The median price target of $79.63 indicates a potential upside of 50.3%.

POWR Ratings Depict Uncertainty

RAMP has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

RAMP has a B grade for Growth, and C for Value and Stability. The company’s revenues have increased 21.6% year-over-year, while its tangible book value rose at CAGR of 93.6% over the past three years. This justifies the stock’s Growth grade. Furthermore, the company’s slight overvaluation and relatively high beta of 1.19 are in sync with the Value and Stability grades.

Of the 77 stocks in the C-rated Technology – Services industry, RAMP is ranked #46. In addition to the grades we’ve highlighted, one can check out additional RAMP Ratings for Momentum, Sentiment, and Quality here.

There are 23 stocks in the Technology – Services industry with an overall rating of A or B. Click here to view them.

Bottom Line

RAMP’s weak profitability in a highly competitive industry might limit its growth potential in the near term. Moreover, with tech stocks expected to decline further given the continued rotation to the outdoor industry, we think it  best to hold off on investing in RAMP now.

Click here to check out our Software Industry Report for 2021

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RAMP shares were trading at $52.03 per share on Wednesday afternoon, down $0.10 (-0.19%). Year-to-date, RAMP has declined -28.91%, versus a 8.96% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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