Slammed 27% Tandem Diabetes Care, Inc. (NASDAQ:TNDM) Screens Well Here But There Might Be A Catch

To the annoyance of some shareholders, Tandem Diabetes Care, Inc. (NASDAQ:TNDM) shares are down a considerable 27% in the last month, which continues a horrid run for the company. Looking at the bigger picture, even after this poor month the stock is up 54% in the last year.

Since its price has dipped substantially, Tandem Diabetes Care may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 2.1x, considering almost half of all companies in the Medical Equipment industry in the United States have P/S ratios greater than 3.2x and even P/S higher than 7x 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 limited.

View our latest analysis for Tandem Diabetes Care

How Has Tandem Diabetes Care Performed Recently?

Tandem Diabetes Care's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. Those who are bullish on Tandem Diabetes Care will be hoping that this isn't the case.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Tandem Diabetes Care.

How Is Tandem Diabetes Care's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Tandem Diabetes Care's to be considered reasonable.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. The latest three year period has also seen a 29% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 12% per annum over the next three years. With the industry only predicted to deliver 9.2% per annum, the company is positioned for a stronger revenue result.

With this information, we find it odd that Tandem Diabetes Care is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Tandem Diabetes Care's P/S?

The southerly movements of Tandem Diabetes Care's shares means its P/S is now sitting at a pretty low level. 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.

To us, it seems Tandem Diabetes Care currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. 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. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

It is also worth noting that we have found 1 warning sign for Tandem Diabetes Care that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.