Revenues Tell The Story For Backblaze, Inc. (NASDAQ:BLZE) As Its Stock Soars 26%

Backblaze, Inc. (NASDAQ:BLZE) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 36%.

Since its price has surged higher, when almost half of the companies in the United States' IT industry have price-to-sales ratios (or "P/S") below 2.3x, you may consider Backblaze as a stock probably not worth researching with its 3x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Backblaze

What Does Backblaze's Recent Performance Look Like?

Backblaze certainly has been doing a good job lately as it's been growing revenue more than most other companies. 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Backblaze.

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

In order to justify its P/S ratio, Backblaze would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. Pleasingly, revenue has also lifted 93% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 19% as estimated by the seven analysts watching the company. That's shaping up to be materially higher than the 10% growth forecast for the broader industry.

With this information, we can see why Backblaze is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Backblaze's P/S

Backblaze's P/S is on the rise since its shares have risen strongly. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Backblaze's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Backblaze (1 doesn't sit too well with us!) 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).

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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.