TELA Bio, Inc. (NASDAQ:TELA) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 33% in the last twelve months.

In spite of the firm bounce in price, TELA Bio's price-to-sales (or "P/S") ratio of 1.2x might still 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 3.2x 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.

How Has TELA Bio Performed Recently?

Recent times have been advantageous for TELA Bio as its revenues have been rising faster 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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 32%. The strong recent performance means it was also able to grow revenue by 165% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 27% per annum during the coming three years according to the five analysts following the company. That's shaping up to be materially higher than the 9.3% each year growth forecast for the broader industry.

With this in consideration, we find it intriguing that TELA Bio's P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Shares in TELA Bio have risen appreciably however, its P/S is still subdued. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for TELA Bio you should be aware of.

If you're unsure about the strength of TELA Bio'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.