Yext currently trades at $8.92 per share and has shown little upside over the past six months, posting a middling return of 1.9%. The stock also fell short of the S&P 500’s 14.1% gain during that period.

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Why Do We Think Yext Will Underperform?

We're sitting this one out for now. Here are three reasons there are better opportunities than YEXT and a stock we'd rather own.

1. Weak ARR Points to Soft Demand

While reported revenue for a software company can include low-margin items like implementation fees, annual recurring revenue (ARR) is a sum of the next 12 months of contracted revenue purely from software subscriptions, or the high-margin, predictable revenue streams that make SaaS businesses so valuable.

Yext’s ARR came in at $446.5 million in Q1, and over the last four quarters, its year-on-year growth averaged 9.1%. This performance was underwhelming and suggests that increasing competition is causing challenges in securing longer-term commitments.

2. 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.

Yext’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 Yext’s products and its peers.

3. Shrinking Operating Margin

While many software businesses point investors to their adjusted profits, which exclude stock-based compensation (SBC), we prefer GAAP operating margin because SBC is a legitimate expense used to attract and retain talent. This metric shows how much revenue remains after accounting for all core expenses – everything from the cost of goods sold to sales and R&D.

Looking at the trend in its profitability, Yext’s operating margin decreased by 3.4 percentage points over the last two years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Yext’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers. Its operating margin for the trailing 12 months was negative 6%.

Final Judgment

Yext falls short of our quality standards. With its shares underperforming the market lately, the stock trades at 2.6× forward price-to-sales (or $8.92 per share). At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment. We’d suggest looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.

Stocks We Like More Than Yext

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.

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