Procore Technologies, Inc. (NYSE:PCOR) shareholders have had their patience rewarded with a 28% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 42%.

After such a large jump in price, Procore Technologies may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 10.7x, since almost half of all companies in the Software industry in the United States have P/S ratios under 5.5x and even P/S lower than 1.9x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

What Does Procore Technologies' Recent Performance Look Like?

Recent times have been advantageous for Procore Technologies 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Procore Technologies.

Is There Enough Revenue Growth Forecasted For Procore Technologies?

The only time you'd be truly comfortable seeing a P/S as steep as Procore Technologies' is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 24%. The latest three year period has also seen an excellent 132% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 14% per year over the next three years. That's shaping up to be materially lower than the 21% each year growth forecast for the broader industry.

With this in consideration, we believe it doesn't make sense that Procore Technologies' P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Key Takeaway

The strong share price surge has lead to Procore Technologies' P/S soaring as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Procore Technologies, this doesn't appear to be impacting the P/S in the slightest. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

You always need to take note of risks, for example - Procore Technologies has 3 warning signs we think you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.