Telos Corporation (NASDAQ:TLS) shares have had a horrible month, losing 26% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 61%, which is great even in a bull market.

Following the heavy fall in price, Telos may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.7x, considering almost half of all companies in the Software industry in the United States have P/S ratios greater than 4.2x and even P/S higher than 10x 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 so limited.

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.

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

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

In order to justify its P/S ratio, Telos would need to produce anemic growth that's substantially trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 33%. As a result, revenue from three years ago have also fallen 19% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 12% as estimated by the six analysts watching the company. Meanwhile, the broader industry is forecast to expand by 15%, which paints a poor picture.

With this information, we are not surprised that Telos is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Telos' P/S Mean For Investors?

Telos' P/S looks about as weak as its stock price lately. 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.

It's clear to see that Telos maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Telos you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.