Planet Labs PBC (NYSE:PL) shares have had a horrible month, losing 27% after a relatively good period beforehand. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 54% loss during that time.

Even after such a large drop in price, when almost half of the companies in the United States' Professional Services industry have price-to-sales ratios (or "P/S") below 1.3x, you may still consider Planet Labs PBC as a stock probably not worth researching with its 2.4x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

What Does Planet Labs PBC's Recent Performance Look Like?

Recent times have been advantageous for Planet Labs PBC as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Is There Enough Revenue Growth Forecasted For Planet Labs PBC?

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

Retrospectively, the last year delivered an exceptional 15% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 95% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 21% per year as estimated by the eleven analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 7.0% per annum, which is noticeably less attractive.

In light of this, it's understandable that Planet Labs PBC's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Despite the recent share price weakness, Planet Labs PBC's P/S remains higher than most other companies in the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Planet Labs PBC's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Planet Labs PBC.

If you're unsure about the strength of Planet Labs PBC's 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.