Many Still Looking Away From Blend Labs, Inc. (NYSE:BLND)
With a price-to-sales (or "P/S") ratio of 1.8x Blend Labs, Inc. (NYSE:BLND) may be sending very bullish signals at the moment, given that almost half of all the Software companies in the United States have P/S ratios greater than 4.1x and even P/S higher than 10x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
View our latest analysis for Blend Labs
How Blend Labs Has Been Performing
While the industry has experienced revenue growth lately, Blend Labs' revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
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.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
There's an inherent assumption that a company should far underperform the industry for P/S ratios like Blend Labs' to be considered reasonable.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 40%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 70% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.
Looking ahead now, revenue is anticipated to climb by 24% each year during the coming three years according to the six analysts following the company. That's shaping up to be materially higher than the 16% each year growth forecast for the broader industry.
In light of this, it's peculiar that Blend Labs' P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Key Takeaway
Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
To us, it seems Blend Labs currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.
Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Blend Labs that you should be aware of.
If these risks are making you reconsider your opinion on Blend Labs, 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.
