Shares of satellite imaging startup Planet Labs (NYSE:PL) have been surging in recent days. The innovative startup, famous for using its small satellites to image the entire planet every single day, has been eyed by investors for many years as a promising idea.
Up until recently, though, the stock has failed to deliver the returns that were expected of it. Shares are now up nearly 40 percent in the last five days alone, bringing PL’s trailing 12-month return to a whopping 372 percent.
Why did Planet Labs stock go up so much, and is now finally the time to buy PL?
What Sent Planet Labs Stock Soaring?
PL’s recent price euphoria was primarily the result of a strong Q2 earnings report that also included an upgrade in management’s full-year guidance.
In the second quarter, Planet Labs delivered revenue of $73.4 million, an all-time record for the business that was also 20% above the year-ago quarter’s revenue.
Remaining performance obligations of $690.1 million were up more than 500% on a year-over-year basis, and Planet’s backlog of $736.1 million was up 245 percent compared to the year-ago quarter.
Planet Labs has also made progress where its cash flow and earnings are concerned. In the first half of its fiscal year, the business was able to generate over $50 million in positive free cash flow. Its net loss in Q2, meanwhile, was $22.6 million, a significant improvement on the $38.7 million it lost a year earlier.
Perhaps the most crucial factor driving PL shares higher, though, was the updated guidance that management provided alongside the Q2 report. Full-year revenue is now expected to fall in the range of $281-$289 million, a major upgrade from the expected range of $265-$280 million offered in the Q1 earnings report.
Adjusted EBITDA loss was also upgraded, with the new guidance calling for a loss of $7 million to $0. Non-GAAP gross margin guidance remains unchanged at 55 to 57%.
Is Planet’s Guidance Reliable?
One of the first questions that longtime observers may ask about PL stock at the moment is whether or not the updated guidance that has contributed so much to the recent price increase is reliable.
After all, Planet Labs has a history of setting optimistic goals and then missing them, look no further than the projections when it first began publicly trading versus actual numbers. The material improvements that the business has made recently, however, could break this cycle.
To begin with, Planet Labs has been building relationships with a number of public customers that notably include the US Department of Defense and NATO. Planet’s enormous trove of data has also become more valuable thanks to the emergence of AI. Not only can AI tools generate deeper insights for Planet’s customers using its archive of satellite images, but the data itself can also be used as training material for AI models.
Though Q2’s results were particularly positive, it’s also worth noting that Planet Labs has been moving in the right direction for quite some time.
The business has now notched 15 quarters of consecutive revenue growth, a trend that seems to be accelerating. If management can keep this momentum going, it’s likely that Planet Labs’ net losses will continue to narrow as it scales up, eventually putting the business on track to achieve net profitability.
Overall, the trends within Planet Labs’ business suggest that the upgraded guidance could be justified and not just optimism on management’s part. The business has successfully multiplied both its RPOs and backlog over the last year, showing much-improved execution on management’s part.
At the same time, technological trends and demand for the data Planet owns could set the business up for long-term growth. Though there are risks that come with investing in a business that has a less-than-ideal history of meeting its own guidance, Planet appears to be in the process of finally turning itself around in a major way.
Is Now the Time to Buy Planet Labs?
Although Planet Labs appears to be moving in a very positive direction, it’s important to consider the stock’s pricing when deciding whether to buy, sell or hold it.
Right now, PL is trading for a hefty premium of 10.2 times sales and 92.2 times operating cash flow. While these metrics are certainly high, it’s crucial to keep in mind that Planet Labs is still a relatively young company that could have a long runway for future growth ahead of it.
Planet Labs’ most important competitive asset remains its incredibly large and all but impossible to replicate library of geospatial data.
The business has been using its network of satellites to image the entire Earth daily for several years, building up a database that goes back farther and which is more comprehensive than any potential competitor’s. As noted above, this data is likely to only become more valuable to both government and private entities as AI and other technologies keep advancing.
Planet Labs is still improving its technology to add value to its newer data. For example, the business is currently building a new constellation made up of its Pelican satellites. These satellites, meant to gradually replace its older ones, offer much higher resolution and much more frequent revisits. These features could make Planet’s services even more valuable to its customers by allowing them to capture greater detail while also seeing changes that occur within a single day.
On the whole, Planet Labs is still a somewhat risk-heavy startup. Though it has both a promising thesis and some very real growth momentum to support it, the business has yet to demonstrate that it can deliver reliable profitability.
The stock has also proven to be exceptionally volatile over time, as evidenced by its 52-week range of $1.84 to $9.71. These factors may make PL unappealing for conservative investors. Those comfortable with elevated risk in exchange for a chance at large returns, though, may find Planet Labs to be worth looking at for its long-term potential now that its performance is starting to pick up in a meaningful way.
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