Should You Ride the Russell Rally with Planet Labs? A Small-Cap Tech Dilemma

Planet Labs PBC (PL), the satellite imaging and Earth-observation firm, is now a member of the Russell 2000 Index—a move that could supercharge its stock through passive fund inflows. But here's the rub: PL's shares have already surged 189% year-to-date, trading at a 1.2x price-to-sales ratio. Is this a buy at these levels, or a trap for the unwary? Let's break it down.

The Russell 2000 Inclusion: A Liquidity Floor or a False Floor?

Planet Labs joined the Russell 2000 on June 30, 2025, after its market cap hit the small-cap threshold. This is a big deal for any stock. The Russell 2000 reconstitution—a biannual ritual—forces passive index funds like the iShares Russell 2000 ETF (IWM) to buy the newly included stock, creating a “liquidity floor.” In 2024, this rebalance alone triggered $220 billion in trading volume. For Planet Labs, IWM's stake in the stock jumped by 2.05% in anticipation, a clear vote of confidence from passive investors.

But here's the catch: not all institutions are buying in. Active managers like Draper Fisher Jurvetson cut their holdings by 25% earlier this year, citing valuation concerns. This divergence raises the question: Is PL's 1.2x P/S ratio justified by its niche tech, or is it a bubble waiting to pop?

The Case for the Bulls: Growth in Niche Markets

Planet Labs' revenue grew 25% year-over-year in its Defense & Intelligence (DNI) sector, thanks to contracts with international defense clients and NASA. Its backlog of $527 million (as of Q1 2026) and RPOs (Remaining Performance Obligations) of $452 million signal future demand. The company also launched AI-powered analytics tools and hyperspectral satellites like Tanager 1, which can detect methane leaks—a hot-button issue for climate-conscious investors.

Moreover, the Russell inclusion isn't just about passive inflows. It signals to the market that Planet Labs is now a “legitimate” small-cap stock, potentially attracting more institutional interest. The stock's 189% YTD rally isn't just hype; it's rooted in real revenue growth and a strategic pivot to government and defense contracts.

The Case for the Bears: Valuation and Execution Risks

The 1.2x P/S ratio is eye-popping for a company still burning cash. While Planet Labs reported its first positive free cash flow ($8 million in Q1 2026), its adjusted EBITDA remains negative. Active managers argue that the stock's surge is outpacing its path to profitability. Meanwhile, macro risks loom: delays in government contracts (like NASA's $20 million order pushed to Q2 2026) and unpredictable deal timing could keep revenue volatile.

Then there's the broader market: Small-cap tech stocks are notoriously sensitive to interest rates and macroeconomic shifts. If the Fed's rate cuts fail to revive growth, Planet Labs' valuation could crumble.

The Gradual Play: Wait for the Earnings Crossroads

The smart move here is to avoid all-in bets. Instead, use the September 4, 2025 earnings report as a trigger. This is when Planet Labs will release Q2 2026 results, which should include updates on its hyperspectral satellite launches and AI partnerships. If revenue hits the high end of its $65–67 million guidance and margins expand further, the stock could justify its premium.

Pair this with a close eye on macro trends: Defense spending (especially in Europe and Asia) and climate regulations could amplify demand for Planet's data. Meanwhile, a might show if passive inflows are lasting or fleeting.

Final Verdict: Buy the Dip, Not the Rally

Planet Labs is a compelling story with a real tech edge and a tailwind from passive funds. But at 1.2x sales, there's little margin for error. My advice: wait for the September earnings. If they beat expectations, buy a chunk. If not, or if the stock corrects post-report, use that dip to accumulate. And always remember: in small-cap land, momentum can vanish as fast as it arrives. Stay patient, stay disciplined.