Is This Space Stock Finally About to Soar?

Planet Labs (NYSE:PL) once appeared to be among the hottest up-and-coming technology stocks in the American market.

The company, famous for being the first to image the entire world every single day using its large fleet of private satellites, was expected to become the leader in geospatial imaging and provide enormously valuable data to governments, academics and enterprises.

Though there is little doubt that Planet Labs has succeeded in creating a massive data library, its stock has been far from the success story observers once anticipated.

PL shares are down over 50% in the last 12 months and more than 80% from the record close of $11.84 in November of 2021.

Why has Planet Labs produced such large losses for its shareholders and can the company finally turn around to begin rewarding its investors?

Why Has Planet Labs Underperformed?

Persistent losses and slower than forecast growth have been the main culprits in explaining away Planet’s underperformance.

Over the past 12 months, the company has repeatedly revised growth forecasts lower, lost $140.5 million and reported a net margin of -63.7%.

In spite of the sharp pullback in share price, Planet Labs still trades at about 2.6x sales, a level that has remained fairly stable since Q3 of last year. It should be highlighted however that ex-cash the number is closer to 1.0x sales.

Though the price-to-sales ratio has leveled off as prices have fallen, the stock traded at 5-6x sales throughout 2022 and early 2023.

Given the somewhat speculative nature of the investment and the subsequent inability to drive earnings growth, Planet Labs was priced to perfection during this period and that the market has since reflected the disappointment in lower growth forecasts.

Throughout late 2022 and early 2023, the company’s revenues were consistently growing at year-over-year rates of over 30%. For the past three quarters, though, this growth has leveled off at a much lower rate of 10-12%.

As the number of shares outstanding increased and the Board of Directors appeared to generously award equity compensation, the stage was set for further downward pressure on share prices. The subsequent decline in revenue growth rates combined with the failure to move toward profitability only compounded matters.

A final issue that has clearly tested investors’ patience is management’s consistent inability to provide accurate revenue forecasting. Throughout the period of falling revenue growth that has taken place over the last year, management has overestimated their team’s capacity to meet and beat sales forecasts.

Worse still, management has chosen to cease issuing forward guidance altogether. This lack of confidence in predictable, sustainable growth understandably weighed on already concerned shareholders, providing yet another incentive to sell shares.

Could Planet Labs Finally Have a Growth Catalyst?

Planet Labs may have taken some serious blows but it’s not knocked out by any means. Its enormous data sets can be trained on AI models to provide real and valuable solutions that customers demand.

Artificial intelligence has the potential to finally turn Planet Labs’ key competitive advantage into top-line results. The amount of data required to train AIs frequently limits their utility in fields where data is either unavailable or spread into too many different places.

For companies trying to train AIs with geospatial data, Planet Labs represents what amounts to a one-stop shop for troves of earth images compiled over many years.

In addition to this new catalyst, Planet Labs also continues to gradually build its customer and revenue base. As of the most recent earnings report, total customer counts were up 15% year-over-year. Revenues were up 11%, and quarterly operating expenses fell by nearly 7.5%.

It’s also worth noting that Planet Labs’ losses are beginning to recede. For the 12 months ending on January 31, losses fell to $140.5 million, compared to $162.0 million in the year-ago period.

Clearly, these improvements are modest ones but they are positive nonetheless. A continuation in these trends should position Planet Labs to move gradually closer toward profitability.

The boost from AI data demand is likely to accelerate the process by providing tailwinds to revenue growth. So, while Planet Labs isn’t entirely out of the woods, some of its fundamentals are beginning to move in the right direction.

Will Planet Labs Stock Recover?

According to analysts, Planet Labs stock will recover as losses diminish and growth rates resume. They have a consensus fair value of $4.51 per share, representing more than 150% upside.

Of those analysts, six rate the stock as a buy and two rate it as a hold. Remarkably, no downgrades to Sell have been catalogued over the past year, even after the share price plunge.

Still, investors may wish to be cautious. Planet Labs has seen fairly consistent enthusiasm from analysts throughout its history of trading publicly. Although the company certainly still has potential, its recent track record is less than inspiring and the share price alone provides sufficient reasons to tread carefully.

Although Planet Labs likely has the potential to begin a turnaround, it may be best for investors to watch the company’s performance for a while to see if it can begin raising its revenues at a faster pace again.

One of the advantages of the present low prices is that it could give investors the luxury of waiting and watching. If Planet Labs improves its performance and seems to be building steam in a positive direction, investors are likely to still be able to snap up shares at attractive prices.

Planet Labs has a lot going for it, but the question remains of whether the company can leverage its natural advantages and turn them into real revenue and, more importantly, net income.

At the moment, PL looks like a better hold than a buy. If the company’s fundamentals keep improving, though, investors may find decent value in the earth observation company.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.