Not Many Are Piling Into Telefónica Chile S.A. (SNSE:CTC) Stock Yet As It Plummets 28%

Telefónica Chile S.A. (SNSE:CTC) shareholders that were waiting for something to happen have been dealt a blow with a 28% 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 44% share price drop.

Following the heavy fall in price, considering around half the companies operating in Chile's Telecom industry have price-to-sales ratios (or "P/S") above 1.4x, you may consider Telefónica Chile as an solid investment opportunity with its 0.3x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Telefónica Chile

How Has Telefónica Chile Performed Recently?

Telefónica Chile has been doing a decent job lately as it's been growing revenue at a reasonable pace. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Telefónica Chile will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Telefónica Chile will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

Telefónica Chile'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.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.0% last year. This was backed up an excellent period prior to see revenue up by 37% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is predicted to deliver 12% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

In light of this, it's peculiar that Telefónica Chile's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can maintain recent growth rates.

The Key Takeaway

The southerly movements of Telefónica Chile's shares means its P/S is now sitting at a pretty low level. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Telefónica Chile revealed its three-year revenue trends looking similar to current industry expectations hasn't given the P/S the boost we expected, given that it's lower than the wider industry P/S, There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's performance. medium-term

We don't want to rain on the parade too much, but we did also find 3 warning signs for Telefónica Chile (2 are a bit concerning!) that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.