It's Down 26% But Tessellis S.p.A. (BIT:TSL) Could Be Riskier Than It Looks

Unfortunately for some shareholders, the Tessellis S.p.A. (BIT:TSL) share price has dived 26% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 83% loss during that time.

Following the heavy fall in price, Tessellis may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Telecom industry in Italy have P/S ratios greater than 0.8x and even P/S higher than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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Check out our latest analysis for Tessellis

How Has Tessellis Performed Recently?

As an illustration, revenue has deteriorated at Tessellis over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Tessellis will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Tessellis, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Tessellis' Revenue Growth Trending?

In order to justify its P/S ratio, Tessellis would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 6.2% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 44% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 2.5% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Tessellis' P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Tessellis' recently weak share price has pulled its P/S back below other Telecom companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of Tessellis revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Having said that, be aware Tessellis is showing 4 warning signs in our investment analysis, and 2 of those can't be ignored.

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.