Call center software specialist Five9 (FIVN -0.78%) looks incredibly expensive at a glance. As of Aug. 26, the stock is changing hands at 288 times earnings. That's not a typo or a missing decimal point -- Five9 trades at nearly 300 times trailing earnings.
But I can show you a quick chart that makes Five9's stock look downright cheap. Here you go:
FIVN EPS Diluted (TTM) data by YCharts
It's amazing what a different perspective can do. In this chart, you see Five9 reporting bottom-line losses on a trailing-12-month basis for a long time. Those earnings barely inched across the breakeven line with July's second-quarter report. From here, the analyst community expects the earnings to keep growing over at least the next two years, resulting in much more robust earnings figures over time.
The price-to-earnings (P/E) ratio math gets weird when the denominator (earnings) is barely positive. That's what's going on here, which explains Five9's triple-digit P/E ratio today. Even a small improvement from here can make a big difference to the valuation in 2026 and beyond.
In this case, the forward-looking P/E ratio works out to just 9 times Wall Street's consensus earnings estimates for the next year. That's a bargain in my book.
Five9's biggest challenge today
Now, Five9 has some issues. Longtime CEO Mike Burkland just announced his retirement after more than two decades on the job. His successor will have big shoes to fill, as Burkland transformed Five9 from a small-cap tech oddity to a billion-dollar customer service expert.
Image source: Getty Images.
Still, he's leaving the company on a high note with record-level revenues, rising profits, and reliable cash flows. This top-notch business platform should make it easy to find a high-quality replacement for the CEO role at Five9.
And in the meantime, Five9's stock looks undervalued when you keep its soaring bottom-line earnings in mind.
