Telesat Corporation's (TSE:TSAT) Share Price Boosted 30% But Its Business Prospects Need A Lift Too

Telesat Corporation (TSE:TSAT) shares have had a really impressive month, gaining 30% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 38%.

Although its price has surged higher, given about half the companies operating in Canada's Telecom industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Telesat as an attractive investment with its 0.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Telesat

What Does Telesat's Recent Performance Look Like?

Telesat could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Want the full picture on analyst estimates for the company? Then our free report on Telesat will help you uncover what's on the horizon.

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

Telesat's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 11% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 16% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 5.9% per annum during the coming three years according to the two analysts following the company. Meanwhile, the broader industry is forecast to expand by 96% each year, which paints a poor picture.

With this information, we are not surprised that Telesat 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 Telesat's P/S Mean For Investors?

Despite Telesat's share price climbing recently, its P/S still lags most other companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Telesat's P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Telesat's poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Before you settle on your opinion, we've discovered 3 warning signs for Telesat (2 are a bit concerning!) that you should be aware of.

If these risks are making you reconsider your opinion on Telesat, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.