Positive Sentiment Still Eludes TELA Bio, Inc. (NASDAQ:TELA) Following 26% Share Price Slump

The TELA Bio, Inc. (NASDAQ:TELA) share price has fared very poorly over the last month, falling by a substantial 26%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 63% loss during that time.

Since its price has dipped substantially, TELA Bio's price-to-sales (or "P/S") ratio of 0.6x 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 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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See our latest analysis for TELA Bio

How Has TELA Bio Performed Recently?

TELA Bio certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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?

The only time you'd be truly comfortable seeing a P/S as depressed as TELA Bio's is when the company's growth is on track to lag the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 16%. Pleasingly, revenue has also lifted 117% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 24% per year during the coming three years according to the five analysts following the company. With the industry only predicted to deliver 9.3% per annum, the company is positioned for a stronger revenue result.

With this information, we find it odd that TELA Bio is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

TELA Bio's P/S looks about as weak as its stock price lately. 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.

A look at TELA Bio's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

There are also other vital risk factors to consider and we've discovered 2 warning signs for TELA Bio (1 is significant!) that you should be aware of before investing here.

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.