BlackSky Technology Inc. (NYSE:BKSY) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The last month tops off a massive increase of 300% in the last year.
After such a large jump in price, when almost half of the companies in the United States' Professional Services industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider BlackSky Technology as a stock not worth researching with its 8.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.
View our latest analysis for BlackSky Technology
How BlackSky Technology Has Been Performing
BlackSky Technology could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on BlackSky Technology.Do Revenue Forecasts Match The High P/S Ratio?
In order to justify its P/S ratio, BlackSky Technology would need to produce outstanding growth that's well in excess of the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.2%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 116% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.
Turning to the outlook, the next three years should generate growth of 30% per annum as estimated by the nine analysts watching the company. That's shaping up to be materially higher than the 6.9% per annum growth forecast for the broader industry.
With this in mind, it's not hard to understand why BlackSky Technology's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Key Takeaway
BlackSky Technology's P/S has grown nicely over the last month thanks to a handy boost in the share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
As we suspected, our examination of BlackSky Technology's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.
We don't want to rain on the parade too much, but we did also find 4 warning signs for BlackSky Technology that you need to be mindful of.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
Valuation is complex, but we're here to simplify it.
Discover if BlackSky Technology might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.