Telecom Italia S.p.A.'s (BIT:TIT) Popularity With Investors Is Clear

There wouldn't be many who think Telecom Italia S.p.A.'s (BIT:TIT) price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S for the Telecom industry in Italy is similar at about 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for Telecom Italia

How Telecom Italia Has Been Performing

While the industry has experienced revenue growth lately, Telecom Italia's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Keen to find out how analysts think Telecom Italia's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Telecom Italia's Revenue Growth Trending?

In order to justify its P/S ratio, Telecom Italia would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.6%. As a result, revenue from three years ago have also fallen 8.1% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 1.6% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 3.5% per year, which is not materially different.

With this information, we can see why Telecom Italia is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

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.

A Telecom Italia's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Telecom industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

Before you settle on your opinion, we've discovered 2 warning signs for Telecom Italia (1 is concerning!) that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.