Planet Labs PBC (NYSE:PL) Looks Just Right With A 31% Price Jump

Planet Labs PBC (NYSE:PL) shares have continued their recent momentum with a 31% gain in the last month alone. The last month tops off a massive increase of 138% in the last year.

Following the firm bounce in price, you could be forgiven for thinking Planet Labs PBC is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 6.7x, considering almost half the companies in the United States' Professional Services industry have P/S ratios below 1.4x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Planet Labs PBC

How Has Planet Labs PBC Performed Recently?

With revenue growth that's superior to most other companies of late, Planet Labs PBC has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Planet Labs PBC will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Planet Labs PBC would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 12%. This was backed up an excellent period prior to see revenue up by 94% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 11% as estimated by the eleven analysts watching the company. That's shaping up to be materially higher than the 7.3% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Planet Labs PBC's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Planet Labs PBC's P/S?

The strong share price surge has lead to Planet Labs PBC's P/S soaring as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Planet Labs PBC's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Planet Labs PBC, and understanding these should be part of your investment process.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.