Market Might Still Lack Some Conviction On Tandem Diabetes Care, Inc. (NASDAQ:TNDM) Even After 26% Share Price Boost

Tandem Diabetes Care, Inc. (NASDAQ:TNDM) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 54% share price drop in the last twelve months.

Even after such a large jump in price, Tandem Diabetes Care's price-to-sales (or "P/S") ratio of 1x might still make it look like a buy right now compared to the Medical Equipment industry in the United States, where around half of the companies have P/S ratios above 3x and even P/S above 9x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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View our latest analysis for Tandem Diabetes Care

What Does Tandem Diabetes Care's Recent Performance Look Like?

Recent times have been advantageous for Tandem Diabetes Care as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

Tandem Diabetes Care's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 26% last year. Pleasingly, revenue has also lifted 31% 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.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 7.5% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 9.3% each year, which is not materially different.

In light of this, it's peculiar that Tandem Diabetes Care's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

Despite Tandem Diabetes Care's share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Tandem Diabetes Care's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Tandem Diabetes Care with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Tandem Diabetes Care'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.