Porch Group, Inc.'s (NASDAQ:PRCH) Share Price Boosted 26% But Its Business Prospects Need A Lift Too

Porch Group, Inc. (NASDAQ:PRCH) shares have continued their recent momentum with a 26% gain in the last month alone. This latest share price bounce rounds out a remarkable 1,066% gain over the last twelve months.

In spite of the firm bounce in price, Porch Group's price-to-sales (or "P/S") ratio of 3.9x might still make it look like a buy right now compared to the 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 reduced P/S.

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View our latest analysis for Porch Group

What Does Porch Group's Recent Performance Look Like?

Porch Group could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Keen to find out how analysts think Porch Group's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Porch Group's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 7.4% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 75% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 6.1% during the coming year according to the five analysts following the company. With the industry predicted to deliver 20% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Porch Group's 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 We Can Learn From Porch Group's P/S?

The latest share price surge wasn't enough to lift Porch Group's P/S close to the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Porch Group's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 5 warning signs we've spotted with Porch Group (including 4 which are potentially serious).

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.