Despite an already strong run, Porch Group, Inc. (NASDAQ:PRCH) shares have been powering on, with a gain of 125% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 80% in the last year.

In spite of the firm bounce in price, Porch Group may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.8x, since almost half of all companies in the Software industry in the United States have P/S ratios greater than 4.5x and even P/S higher than 11x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

Check out our latest analysis for Porch Group

What Does Porch Group's Recent Performance Look Like?

Porch Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

How Is Porch Group's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 44% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 7.4% over the next year. Meanwhile, the rest of the industry is forecast to expand by 15%, which is noticeably more attractive.

With this in consideration, its clear as to why Porch Group's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Porch Group's recent share price jump still sees fails to bring its P/S alongside the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Porch Group maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. 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.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Porch Group (2 are concerning!) that you should be aware of before investing here.

If you're unsure about the strength of Porch Group'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.