Despite an already strong run, Pagaya Technologies Ltd. (NASDAQ:PGY) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 145% in the last year.
Even after such a large jump in price, Pagaya Technologies' price-to-sales (or "P/S") ratio of 2.5x might still make it look like a strong buy right now compared to the wider Software industry in the United States, where around half of the companies have P/S ratios above 5.1x and even P/S above 12x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
Check out our latest analysis for Pagaya Technologies
What Does Pagaya Technologies' P/S Mean For Shareholders?
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.
Want the full picture on analyst estimates for the company? Then our free report on Pagaya Technologies will help you uncover what's on the horizon.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 25% gain to the company's top line. Pleasingly, revenue has also lifted 79% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 22% during the coming year according to the ten analysts following the company. With the industry only predicted to deliver 20%, the company is positioned for a stronger revenue result.
In light of this, it's peculiar that Pagaya Technologies' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
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. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Pagaya Technologies' analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.
Before you settle on your opinion, we've discovered 2 warning signs for Pagaya Technologies that you should be aware of.
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.