Why Planet Labs Stock Zoomed Higher in May

Shares of Planet Labs (NYSE: PL) zoomed 38.3% higher in May, according to data from S&P Global Market Intelligence. Investors were anticipating further growth in its upcoming June earnings report while benefiting from the broader tailwind in the space economy stocks in the month. Hitting an all-time high in May, the satellite imaging provider is now up an astonishing 991% in the last year alone.

Here's why shares were rising in May, and whether the stock is a buy after its early June earnings report.

Satellite launching progress

Planet Labs has built a constellation of satellites that takes high-resolution images from orbit. These consistent imaging services can be used by scientists, governments, and businesses to track progress or get immediate feedback on a changing environment in vital locations around the globe, from commercial ports to military bases.

The stock struggled coming out of the gate, falling significantly from its SPAC (special purpose acquisition corporation) merger price from 2022 through 2024. But last year, Planet Labs began turning its business around and started winning more contracts, leading to strong revenue growth and an earnings inflection. Last quarter, revenue grew 42% year-over-year to $94 million, gross margin was 54%, and the backlog was up 72% to $904 million.

More specifically, in May, Planet Labs began deploying more of its advanced Pelican satellites, which feature onboard artificial intelligence (AI) computing capabilities in conjunction with Nvidia. This will allow AI systems to monitor imaging services for customers. Planet Labs is winning many government customers. In May alone, it signed seven-figure deals with both the Czech and Greek governments.

Image source: Getty Images.

Time to buy Planet Labs stock?

Another tailwind for Planet Labs is the enthusiasm for space-economy stocks ahead of the SpaceX IPO. Investors want a piece of this fast-growing market right now, and Planet Labs is one of the best ways to get exposure to space data and services.

But should you buy shares after they have risen close to 1,000% in the last twelve months? Planet Labs valuation is a bit overwhelming at the moment, with a price-to-sales ratio (P/S) of 43.5 based on its trailing twelve-month revenue. Revenue is growing quickly, but this is more than 10x the average P/S ratio in the S&P 500 Index.

Planet Labs has also never generated a profit. Revenue growth should continue for years ahead, but it looks like Planet Labs stock is already pricing in a decade's worth of gains. Avoid chasing this stock after a 10x rise in the last year.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Planet Labs PBC. The Motley Fool has a disclosure policy.