The Market Doesn't Like What It Sees From Telos Corporation's (NASDAQ:TLS) Revenues Yet
With a price-to-sales (or "P/S") ratio of 0.8x Telos Corporation (NASDAQ:TLS) may be sending very bullish signals at the moment, given that almost half of all the Software companies in the United States have P/S ratios greater than 4.4x and even P/S higher than 10x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for Telos
How Has Telos Performed Recently?
Telos could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still 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 Telos' 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?
Telos' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.
Retrospectively, the last year delivered a frustrating 11% decrease to the company's top line. Even so, admirably revenue has lifted 36% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.
Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 41% as estimated by the six analysts watching the company. With the industry predicted to deliver 13% growth, that's a disappointing outcome.
With this in consideration, we find it intriguing that Telos' P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
What Does Telos' P/S Mean For Investors?
Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
As we suspected, our examination of Telos' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Telos' poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
It is also worth noting that we have found 4 warning signs for Telos (1 is concerning!) that you need to take into consideration.
If you're unsure about the strength of Telos' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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