BlackSky Technology Inc. (NYSE:BKSY) shares have continued their recent momentum with a 90% gain in the last month alone. The annual gain comes to 161% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given around half the companies in the United States' Professional Services industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider BlackSky Technology as a stock to avoid entirely with its 6.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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See our latest analysis for BlackSky Technology

What Does BlackSky Technology's P/S Mean For Shareholders?

BlackSky Technology could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. 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 BlackSky Technology's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For BlackSky Technology?

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

Retrospectively, the last year delivered a decent 7.0% gain to the company's revenues. Pleasingly, revenue has also lifted 164% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 30% per annum as estimated by the ten analysts watching the company. That's shaping up to be materially higher than the 7.1% each year growth forecast for the broader industry.

With this in mind, it's not hard to understand why BlackSky Technology's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On BlackSky Technology's P/S

The strong share price surge has lead to BlackSky Technology's P/S soaring as well. 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.

As we suspected, our examination of BlackSky Technology'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.

Before you take the next step, you should know about the 3 warning signs for BlackSky Technology (1 doesn't sit too well with us!) that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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