Not Many Are Piling Into TELA Bio, Inc. (NASDAQ:TELA) Stock Yet As It Plummets 50%

The TELA Bio, Inc. (NASDAQ:TELA) share price has fared very poorly over the last month, falling by a substantial 50%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 77% loss during that time.

After such a large drop in price, TELA Bio's price-to-sales (or "P/S") ratio of 0.7x might make it look like a strong buy right now compared to the wider Medical Equipment industry in the United States, where around half of the companies have P/S ratios above 3.1x and even P/S above 7x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for TELA Bio

How TELA Bio Has Been Performing

With revenue growth that's superior to most other companies of late, TELA Bio has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think TELA Bio's future stacks up against the industry? In that case, our free report is a great place to start.

How Is TELA Bio's Revenue Growth Trending?

In order to justify its P/S ratio, TELA Bio would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 19% last year. The latest three year period has also seen an excellent 135% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 23% per annum over the next three years. That's shaping up to be materially higher than the 9.0% each year growth forecast for the broader industry.

With this in consideration, we find it intriguing that TELA Bio's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On TELA Bio's P/S

Having almost fallen off a cliff, TELA Bio's share price has pulled its P/S way down as well. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

TELA Bio's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You need to take note of risks, for example - TELA Bio has 3 warning signs (and 1 which is concerning) we think you should know about.

If these risks are making you reconsider your opinion on TELA Bio, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.