What Is Tata Communications Limited's (NSE:TATACOMM) Share Price Doing?

Tata Communications Limited (NSE:TATACOMM), is not the largest company out there, but it saw its share price hover around a small range of ₹1,660 to ₹1,813 over the last few weeks. But is this actually reflective of the share value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Tata Communications’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Tata Communications

What Is Tata Communications Worth?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 53.07x is currently trading slightly above its industry peers’ ratio of 49.66x, which means if you buy Tata Communications today, you’d be paying a relatively sensible price for it. And if you believe Tata Communications should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. Although, there may be an opportunity to buy in the future. This is because Tata Communications’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What kind of growth will Tata Communications generate?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Tata Communications' earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in TATACOMM’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at TATACOMM? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on TATACOMM, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for TATACOMM, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 3 warning signs for Tata Communications and we think they deserve your attention.

If you are no longer interested in Tata Communications, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.