Pagaya Technologies Ltd.'s (NASDAQ:PGY) Shares Bounce 74% But Its Business Still Trails The Industry

The Pagaya Technologies Ltd. (NASDAQ:PGY) share price has done very well over the last month, posting an excellent gain of 74%. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Even after such a large jump in price, Pagaya Technologies may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.1x, considering almost half of all companies in the Software industry in the United States have P/S ratios greater than 6x and even P/S higher than 13x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Pagaya Technologies

What Does Pagaya Technologies' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Pagaya Technologies has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

How Is Pagaya Technologies' Revenue Growth Trending?

In order to justify its P/S ratio, Pagaya Technologies would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered an exceptional 27% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 118% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 11% per year as estimated by the nine analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 20% each year, which is noticeably more attractive.

In light of this, it's understandable that Pagaya Technologies' P/S sits below the majority of other companies. 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?

Even after such a strong price move, Pagaya Technologies' P/S still trails the rest of the industry. 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. The company will need a change of fortune to justify the P/S rising higher in the future.

Plus, you should also learn about this 1 warning sign we've spotted with Pagaya Technologies.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.