Down Over 40% This Year, Is C3.ai Stock Too Cheap to Pass Up?

C3.ai (NYSE: AI) stock has been in a tailspin this year as fears related to a recession have been on the rise. A slowdown in spending could result in companies slashing budgets for investments, including artificial intelligence (AI) projects. And for a business such as C3.ai, which provides AI solutions, the worry is that may slow down its growth.

Year to date, the stock is now down more than 40% as of Monday's close. Investors have been aggressively dumping shares of the company. But with much more growth still out there, could now be a good time to buy C3.ai stock, while it's trading near its low for the year?

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Business has been growing, but so have losses

C3.ai makes it easy for companies to deploy AI through its turnkey applications. Instead of spending aggressively on research and development, companies can rely on C3.ai's applications to do the work, which can speed up deployment and allow companies to easily see the benefits of AI-related projects.

Providing these types of solutions has allowed C3.ai to grow its business at a fast rate and generate a high rate of recurring subscription revenue. In its most recent quarter, which ended on Jan. 31, C3.ai's revenue totaled $98.8 million -- that was up 26% year over year. And subscriptions made up a big chunk of that, totaling $85.7 million. For C3.ai that's a good sign the business is growing. But the issue is that it may be spending too aggressively in order to do so; its net loss for the period came in at $80.2 million, which was up from $72.6 million in the prior-year period.

While the business is growing, investors likely aren't thrilled to see that the company hasn't been making significant progress toward profitability, and it begs the question of whether or not the business can get to breakeven anytime soon and if its operations are sustainable. As a result of the risk and uncertainty, investors have been demanding more of a discount for the stock these days.

C3.ai trades at a much more modest premium than in the past

Since C3.ai isn't profitable, investors have to rely on other multiples to help gauge the stock's overall valuation. One way is by using the price-to-sales multiple. C3.ai is currently trading at around 7 times its trailing sales, which is a far lower multiple than it has averaged in the past few years.

AI PS Ratio data by YCharts

While this isn't the lowest that it has been, it's a noticeable reduction from what investors have been paying for the stock over the past couple of years. The stock's heavy decline this year has also put it within just a few dollars of its 52-week low of $17.03.

C3.ai stock may be cheaper, but it's still a risky buy

Sometimes buying the dip doesn't make sense -- and that's the case with C3.ai today. The company may seem like an intriguing AI investment but there's no shortage of competition out there with businesses offering similar AI-powered solutions for customers.

The big red flag for investors is that as the business is scaling, it's not making any clear progress toward profitability. Between that and its lack of competitive moat, it's hard to justify buying shares of the business, even though the stock may be trading near its 52-week low.

The danger is that the stock can still go lower because without a sustainable business, frequent share offerings and dilution are a real concern. Ultimately, there are plenty of better AI stocks out there to buy than C3.ai.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends C3.ai. The Motley Fool has a disclosure policy.