Pagaya Technologies Ltd.'s (NASDAQ:PGY) Price Is Right But Growth Is Lacking After Shares Rocket 28%

Pagaya Technologies Ltd. (NASDAQ:PGY) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

In spite of the firm bounce in price, Pagaya Technologies may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1x, since almost half of all companies in the Software industry in the United States have P/S ratios greater than 5x and even P/S higher than 13x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Pagaya Technologies

How Has Pagaya Technologies Performed Recently?

Recent times have been advantageous for Pagaya Technologies as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as Pagaya Technologies' is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. Pleasingly, revenue has also lifted 261% 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 18% as estimated by the nine analysts watching the company. With the industry predicted to deliver 25% growth, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Pagaya Technologies' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Pagaya Technologies' P/S Mean For Investors?

Shares in Pagaya Technologies have risen appreciably however, its P/S is still subdued. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As expected, our analysis of Pagaya Technologies' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Pagaya Technologies is showing 3 warning signs in our investment analysis, you should know about.

If you're unsure about the strength of Pagaya Technologies' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.