Alpha Teknova, Inc. (NASDAQ:TKNO) Might Not Be As Mispriced As It Looks After Plunging 30%

Unfortunately for some shareholders, the Alpha Teknova, Inc. (NASDAQ:TKNO) share price has dived 30% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 54% share price decline.

Since its price has dipped substantially, Alpha Teknova's price-to-sales (or "P/S") ratio of 1.4x might make it look like a buy right now compared to the Life Sciences industry in the United States, where around half of the companies have P/S ratios above 3.1x and even P/S above 6x 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.

View our latest analysis for Alpha Teknova

What Does Alpha Teknova's P/S Mean For Shareholders?

Recent times haven't been great for Alpha Teknova as its revenue has been falling quicker than most other companies. It seems that many are expecting the dismal revenue performance to persist, which has repressed the P/S. You'd much rather the company improve its revenue performance if you still believe in the business. Or at the very least, you'd be hoping the revenue slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For Alpha Teknova?

The only time you'd be truly comfortable seeing a P/S as low as Alpha Teknova's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.5%. Regardless, revenue has managed to lift by a handy 7.6% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 6.7% over the next year. That's shaping up to be materially higher than the 4.0% growth forecast for the broader industry.

With this information, we find it odd that Alpha Teknova 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 Does Alpha Teknova's P/S Mean For Investors?

Alpha Teknova's recently weak share price has pulled its P/S back below other Life Sciences companies. 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.

To us, it seems Alpha Teknova currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Alpha Teknova that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com