What a time it’s been for Planet Labs. In the past six months alone, the company’s stock price has increased by a massive 128%, reaching $34.77 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is it too late to buy PL? Find out in our full research report, it’s free.

Why Is Planet Labs a Good Business?

Pioneering the concept of "agile aerospace" with hundreds of small but powerful satellites, Planet Labs (NYSE: PL) operates the world's largest fleet of Earth observation satellites, capturing daily images of our planet to provide insights on deforestation, agriculture, and climate change.

1. Surging Backlog Locks In Future Sales

In addition to reported revenue, backlog is a useful data point for analyzing Data & Business Process Services companies. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Planet Labs’s future revenue streams.

Planet Labs’s backlog punched in at $900.4 million in the latest quarter, and over the last two years, its year-on-year growth averaged 157%. This performance was fantastic and shows the company has a robust sales pipeline because it is accumulating more orders than it can fulfill. Its growth also suggests that customers are committing to Planet Labs for the long term, enhancing the business’s predictability.

2. EPS Improving Significantly

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Although Planet Labs’s full-year earnings are still negative, it reduced its losses and improved its EPS by 100% annually over the last four years. The next few quarters will be critical for assessing its long-term profitability. An inflection point could be coming soon.

3. Increasing Free Cash Flow Margin Juices Financials

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Planet Labs’s margin expanded by 58.8 percentage points over the last five years. Planet Labs’s free cash flow margin for the trailing 12 months was 18.7%.

Final Judgment

These are just a few reasons why Planet Labs is one of the best business services companies out there, and after the recent rally, the stock trades at 1,345.4× forward EV-to-EBITDA (or $34.77 per share). Is now a good time to buy despite the apparent froth? See for yourself in our in-depth research report, it’s free.

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