Getting In Cheap On TELA Bio, Inc. (NASDAQ:TELA) Might Be Difficult

You may think that with a price-to-sales (or "P/S") ratio of 5.1x TELA Bio, Inc. (NASDAQ:TELA) is a stock to potentially avoid, seeing as almost half of all the Medical Equipment companies in the United States have P/S ratios under 4.1x and even P/S lower than 1.4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for TELA Bio

How TELA Bio Has Been Performing

Recent times have been advantageous for TELA Bio 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on TELA Bio will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For TELA Bio?

There's an inherent assumption that a company should outperform the industry for P/S ratios like TELA Bio's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 42%. Pleasingly, revenue has also lifted 184% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 48% as estimated by the five analysts watching the company. With the industry only predicted to deliver 9.0%, the company is positioned for a stronger revenue result.

With this information, we can see why TELA Bio is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of TELA Bio's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

You need to take note of risks, for example - TELA Bio has 3 warning signs (and 2 which are concerning) we think you should know about.

If you're unsure about the strength of TELA Bio's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.