Blend Labs, Inc.'s (NYSE:BLND) 27% Share Price Plunge Could Signal Some Risk

The Blend Labs, Inc. (NYSE:BLND) share price has softened a substantial 27% over the previous 30 days, handing back much of the gains the stock has made lately. Looking at the bigger picture, even after this poor month the stock is up 57% in the last year.

In spite of the heavy fall in price, there still wouldn't be many who think Blend Labs' price-to-sales (or "P/S") ratio of 6.3x is worth a mention when the median P/S in the United States' Software industry is similar at about 5.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Blend Labs

What Does Blend Labs' P/S Mean For Shareholders?

Blend Labs could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Blend Labs will help you uncover what's on the horizon.

How Is Blend Labs' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Blend Labs' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.2%. This means it has also seen a slide in revenue over the longer-term as revenue is down 15% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 19% during the coming year according to the seven analysts following the company. That's shaping up to be materially lower than the 27% growth forecast for the broader industry.

In light of this, it's curious that Blend Labs' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

With its share price dropping off a cliff, the P/S for Blend Labs looks to be in line with the rest of the Software industry. 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.

Our look at the analysts forecasts of Blend Labs' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

You should always think about risks. Case in point, we've spotted 1 warning sign for Blend Labs you should be aware of.

If you're unsure about the strength of Blend Labs' 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.