Improved Revenues Required Before Porch Group, Inc. (NASDAQ:PRCH) Stock's 39% Jump Looks Justified

Despite an already strong run, Porch Group, Inc. (NASDAQ:PRCH) shares have been powering on, with a gain of 39% in the last thirty days. The last 30 days bring the annual gain to a very sharp 77%.

Although its price has surged higher, Porch Group may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.8x, considering almost half of all companies in the Software industry in the United States have P/S ratios greater than 4.3x and even P/S higher than 11x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Porch Group

How Has Porch Group Performed Recently?

Recent times have been advantageous for Porch Group as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Porch Group 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 Porch Group's is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 44% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 7.1% as estimated by the eight analysts watching the company. With the industry predicted to deliver 15% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Porch Group is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Porch Group's P/S Mean For Investors?

Shares in Porch Group have risen appreciably however, its P/S is still subdued. 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.

We've established that Porch Group maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. 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 Porch Group is showing 3 warning signs in our investment analysis, and 1 of those is significant.

If these risks are making you reconsider your opinion on Porch Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.