Tata Teleservices (Maharashtra) Limited's (NSE:TTML) 32% Price Boost Is Out Of Tune With Revenues

The Tata Teleservices (Maharashtra) Limited (NSE:TTML) share price has done very well over the last month, posting an excellent gain of 32%. Looking further back, the 24% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, when almost half of the companies in India's Telecom industry have price-to-sales ratios (or "P/S") below 3.1x, you may consider Tata Teleservices (Maharashtra) as a stock not worth researching with its 16.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Tata Teleservices (Maharashtra)

How Tata Teleservices (Maharashtra) Has Been Performing

Revenue has risen firmly for Tata Teleservices (Maharashtra) recently, which is pleasing to see. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for Tata Teleservices (Maharashtra), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Tata Teleservices (Maharashtra)'s Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Tata Teleservices (Maharashtra)'s is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.7% last year. The solid recent performance means it was also able to grow revenue by 14% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 4.5% shows it's about the same on an annualised basis.

In light of this, it's curious that Tata Teleservices (Maharashtra)'s P/S sits above the majority of other companies. Apparently many investors in the company are more bullish than recent times would indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as a continuation of recent revenue trends would weigh down the share price eventually.

What Does Tata Teleservices (Maharashtra)'s P/S Mean For Investors?

Tata Teleservices (Maharashtra)'s P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

We didn't expect to see Tata Teleservices (Maharashtra) trade at such a high P/S considering its last three-year revenue growth has only been on par with the rest of the industry. When we see average revenue with industry-like growth combined with a high P/S, we suspect the share price is at risk of declining, bringing the P/S back in line with the industry too. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 2 warning signs for Tata Teleservices (Maharashtra) (1 is a bit concerning!) that you should be aware 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.

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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.

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