TLS

We rate TELOS CORP (TLS) as a Reduce with a composite score of 48.9/100 at a current price of $3.91. The quantitative profile shows weakness across multiple dimensions, suggesting limited upside potential and elevated risk of underperformance relative to peers over the next 12 months.

The rating is primarily driven by strength in quality (57th percentile) and value (53th percentile), which together account for the majority of the composite score. Offsetting weakness in stability (32th percentile) and investment (39th percentile) tempers our overall conviction. We assign a No Moat rating (31/100), High uncertainty, and Poor capital allocation.

Key items to watch: sustainability of the current growth rate; the path to profitability. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

TELOS CORP holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 48.9/100 places it at rank #2177 in our full 7,333-stock universe. At $497M in market capitalization, TELOS CORP is a small-cap player in the Manufacturing space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue is growing at 81%, though momentum at the 44th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 32% (-11.0pp vs sector) narrow to operating margins of -46% (-47.1pp vs sector) and net margins of -44.2%, yielding a gross-to-net conversion rate of -140%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $3.91, TELOS CORP is trading near fair value based on current fundamentals. Our value factor score of 53/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at EV/EBITDA of 100.5x (at a premium), P/B of 2.5x, P/S of 2.1x. We evaluate these multiples in the context of both absolute levels and sector-relative positioning to form our valuation view.

We assign a High uncertainty rating to TELOS CORP. Key risk factors include elevated market sensitivity (beta of 1.71), current negative profitability (net margin -44.2%), below-average price stability (32th percentile). The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 1.71); current negative profitability (net margin -44.2%); below-average price stability (32th percentile). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 32th percentile and quality factor at the 57th percentile provide a quantitative summary of the overall risk landscape.

We identify limited risk mitigants at this time, which contributes to our high uncertainty assessment. Investors should monitor for improvement in balance sheet metrics, margin stability, and business predictability that could warrant a downgrade in our risk assessment over time.

We rate TELOS CORP's capital allocation as Poor. Key concerns include low returns on equity (-40.4%), negative profitability, weak asset returns (ROA -29.4%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — TELOS CORP significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, TELOS CORP receives a Reduce rating with a composite score of 48.9/100 (rank #2177 of 7,333). Our quantitative framework assigns a No Moat (31/100, trend: stable), High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 45/100.

Our analysis does not support a constructive view on TELOS CORP at this time. The combination of limited competitive advantages, high uncertainty, and poor capital allocation suggests unfavorable risk-reward at current levels. We recommend investors avoid new positions and existing holders consider reducing exposure.