Unfortunately for some shareholders, the Backblaze, Inc. (NASDAQ:BLZE) share price has dived 29% in the last thirty days, prolonging recent pain. Still, a bad month hasn't completely ruined the past year with the stock gaining 56%, which is great even in a bull market.

In spite of the heavy fall in price, you could still be forgiven for thinking Backblaze is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.5x, considering almost half the companies in the United States' IT industry have P/S ratios below 1.8x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

How Backblaze Has Been Performing

Recent times have been advantageous for Backblaze 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 Backblaze?

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

Retrospectively, the last year delivered an exceptional 22% gain to the company's top line. The latest three year period has also seen an excellent 93% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 22% during the coming year according to the six analysts following the company. That's shaping up to be materially higher than the 8.7% growth forecast for the broader industry.

In light of this, it's understandable that Backblaze'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.

What We Can Learn From Backblaze's P/S?

Despite the recent share price weakness, Backblaze's P/S remains higher than most other companies in 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.

Our look into Backblaze shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you settle on your opinion, we've discovered 3 warning signs for Backblaze that you should be aware of.

If these risks are making you reconsider your opinion on Backblaze, explore our interactive list of high quality stocks to get an idea of what else is out there.

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