Telos Corporation (NASDAQ:TLS) shareholders that were waiting for something to happen have been dealt a blow with a 46% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 14% share price drop.

Following the heavy fall in price, Telos' price-to-sales (or "P/S") ratio of 1x might make it look like a strong buy right now compared to the wider Software industry in the United States, where around half of the companies have P/S ratios above 4.3x and even P/S above 11x 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 Telos Has Been Performing

While the industry has experienced revenue growth lately, Telos' revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Telos?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 31%. As a result, revenue from three years ago have also fallen 29% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 19% per year as estimated by the six analysts watching the company. That's shaping up to be similar to the 18% per annum growth forecast for the broader industry.

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

The Final Word

Having almost fallen off a cliff, Telos' share price has pulled its P/S way down as well. 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.

We've seen that Telos currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Having said that, be aware Telos is showing 4 warning signs in our investment analysis, and 2 of those don't sit too well with us.

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.

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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.