RingCentral, Inc. (RNG) is a leading provider of contact center software-as-a-service (SaaS) solutions, along with global enterprise cloud communications, video meetings, collaboration, and customer engagement solutions that enable businesses to communicate, collaborate, and connect.

RNG shares have gained 18.8% over the past six months, closing the last trading session at $33.57. The uptick is driven by several factors, including the increasing adoption of its Unified Communications as a Service (UCaaS) platform, strong demand for its cloud phone systems, and commitment to innovation through AI-powered enhancements.

The company has introduced solutions like RingCX, RingSense, and RingCentral Events, which are designed to improve user experiences and streamline operations. Moreover, its strategic partnerships with telecom giants like Verizon Communications Inc. (VZ) and AT&T Inc. (T) provide greater accessibility and industry-specific solutions, bolstering its market presence.

Given RNG’s expanding portfolio and growing customer base, is now the right time to invest in RNG shares? Let’s look at some factors that could influence RNG’s price performance in the near term:

Recent Developments

On December 5, 2024, RNG inaugurated its new state-of-the-art office in Bangalore, India. The expansion strengthens the company’s regional presence and positions it to capitalize on India’s growing role as a global tech innovation center, potentially boosting operational efficiency and scalability.

In the same month, RNG unveiled the Zendesk Talk Partner Edition for RingEX™, an upgrade which integrates advanced voice capabilities and call data directly into Zendesk’s customer support platform. This enhancement streamlines workflows and equips users with actionable insights to deliver personalized and efficient customer service.

On November 7, RNG joined forces with Verint Systems Inc. (VRNT) to enhance RingCX offerings. This partnership allows RingCX customers to benefit from VRNT’s advanced WEM and CX automation solutions, which complement RingCentral’s native AI features.

Strong Financials

RNG’s total revenue for the fiscal third quarter (ended September 30, 2024) increased 9.1% year-over-year to $608.77 million, largely driven by a 9.7% uptick in subscription revenue. Annualized Exit Monthly Recurring Subscriptions (ARR) increased 9% year-over-year to $2.48 billion.

Its gross profit grew 10.1% from the year-ago value to $428.58 million, while its income from operations came in at $3.29 million compared to a loss of $54.17 million in the previous year. The company’s non-GAAP net income amounted to $88.93 million and $0.95 per share, representing an increase of 16.9% and 21.8%, respectively. Moreover, its non-GAAP free cash flow stood at $105.44 million, up 50.7% year-over-year.

Rosy Annual Forecasts

The consensus revenue estimate for the fiscal year ended December 31, 2024, stands at $2.40 billion, signaling an 8.9% year-over-year increase. Moreover, the company’s EPS is anticipated to witness a 14.2% uptick from the previous year, reaching $3.69.

Analysts anticipate a 7.4% increase in revenue for the fiscal year 2025, with projections reaching $2.57 billion. Similarly, EPS for the current year is expected to experience a steady growth of 14.3% from the prior year, settling at $4.22.

Discounted Valuation

In terms of forward non-GAAP P/E, RNG is trading at 9.10x, 64.1% lower than the industry average of 25.34x. Likewise, its forward EV/Sales multiple of 1.92 is 42.8% lower than the industry average of 3.35x. In addition, the stock’s forward EV/EBITDA of 7.76x is 50.4% lower than the 15.63x industry average. Also, its forward Price/Sales multiple of 1.26 compares to the industry average of 3.28.

High Profitability

RNG’s trailing-12-month gross profit margin of 70.43% is 38.8% higher than the 50.75% industry average. The stock’s 24.85% trailing-12-month levered FCF margin is 119.4% above the 11.33% industry average. Further, its trailing-12-month asset turnover ratio of 1.18x compares to the industry average of 0.61x.

POWR Ratings Show Promise

RNG’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. RNG has an A grade for Growth, consistent with its strong financial performance in the last reported quarter. It also earns a B for Quality, reflecting its higher profitability metrics compared to industry standards.

RNG is ranked #5 out of 40 stocks in the B-rated Software – Business industry. Click here to access RNG’s Value, Momentum, Stability, and Sentiment ratings.

Bottom Line

RNG’s strategic focus on AI-powered innovation and robust demand for its UCaaS and SaaS solutions have positioned the company as a leader in the communication solutions market. With a target to achieve $100 million in exit annual recurring revenue from new products by the end of 2025, RNG’s progress shows promise. On top of it, the recent PAN-India license approval is a game-changer, enabling RNG to deliver fully compliant UCaaS and CCaaS solutions across all 22 telecommunications circles in India.

Given RNG’s innovative growth strategies, strong financials, lower-than-industry valuation, and high profitability, we think it could be wise to invest in this stock now.

How Does RingCentral, Inc. (RNG) Stack Up Against Its Peers?

While RNG has an overall grade of A, equating to a Strong Buy rating, you may also check out these other stocks within the Software – Business industry: SolarWinds Corporation (SWI), F5, Inc. (FFIV), and FARO Technologies, Inc. (FARO) all of which carry A (Strong Buy) ratings. To explore more Software – Business stocks, click here.

What To Do Next?

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RNG shares fell $0.57 (-1.70%) in premarket trading Friday. Year-to-date, RNG has declined -5.74%, versus a -0.48% rise in the benchmark S&P 500 index during the same period.

About the Author: Shweta Kumari

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...

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