Telecom Italia SpA (BIT:TIT): Is Growth Priced In?

Growth expectations for Telecom Italia SpA (BIT:TIT) are high, but many investors are starting to ask whether its last close at €0.549 can still be rationalized by the future potential. Let’s take a look at some key metrics to determine whether there's any value here for current and potential future investors.

See our latest analysis for Telecom Italia

What can we expect from Telecom Italia in the future?

According to the analysts covering the company, the following few years should bring about good growth prospects for Telecom Italia. Expectations from 23 analysts are buoyant with earnings per share estimated to rise from today's level of €0.0512 to €0.0830 over the next three years. This results in an annual growth rate of 10.2%, on average, which illustrates an optimistic outlook in the near term.

Is TIT's share price justifiable by its earnings growth?

Stocks like Telecom Italia, with a price-to-earnings (P/E) ratio of 10.72x, always catch the eye of investors on the hunt for a bargain. In isolation, this metric can be a bit too simplistic but in comparison to benchmarks, it tells us that TIT is undervalued relative to the current IT market average of 16.69x , and undervalued based on its latest annual earnings update compared to the telecom average of 21.92x . This multiple is a median of profitable companies of 4 Telecom companies in IT including Intred, Retelit and EI Towers.

Given that TIT's price-to-earnings of 10.72x lies below the industry average, this already indicates that the company could be potentially undervalued. However, seeing as Telecom Italia is perceived as a high-growth stock, we must also account for its earnings growth, which is captured in the PEG ratio. A PE ratio of 10.72x and expected year-on-year earnings growth of 10.2% give Telecom Italia an acceptable PEG ratio of 1.05x. Based on this growth, Telecom Italia's stock can be considered slightly overvalued , based on fundamental analysis.

What this means for you:

TIT's current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you're a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:

1. Financial Health: Are TIT’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
2. Past Track Record: Has TIT been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of TIT's historicals for more clarity.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.