Optimistic Investors Push Blend Labs, Inc. (NYSE:BLND) Shares Up 30% But Growth Is Lacking

Blend Labs, Inc. (NYSE:BLND) shareholders have had their patience rewarded with a 30% share price jump in the last month. The annual gain comes to 132% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, it's still not a stretch to say that Blend Labs' price-to-sales (or "P/S") ratio of 5x right now seems quite "middle-of-the-road" compared to the Software industry in the United States, where the median P/S ratio is around 4.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Blend Labs

What Does Blend Labs' Recent Performance Look Like?

While the industry has experienced revenue growth lately, Blend Labs' revenue has gone into reverse gear, which is not great. 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.

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

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Blend Labs would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 23% 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 38% 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 12% during the coming year according to the five analysts following the company. With the industry predicted to deliver 14% growth, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Blend Labs' P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

Blend Labs' stock has a lot of momentum behind it lately, which has brought its P/S level with 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.

Given that Blend Labs' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. 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.

Before you take the next step, you should know about the 4 warning signs for Blend Labs that we have uncovered.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com