Investors Appear Satisfied With Telia Company AB (publ)'s (STO:TELIA) Prospects

There wouldn't be many who think Telia Company AB (publ)'s (STO:TELIA) price-to-sales (or "P/S") ratio of 1.4x is worth a mention when the median P/S for the Telecom industry in Sweden is very similar. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Telia Company

What Does Telia Company's Recent Performance Look Like?

Recent revenue growth for Telia Company has been in line with the industry. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Telia Company.

Do Revenue Forecasts Match The P/S Ratio?

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

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. The longer-term trend has been no better as the company has no revenue growth to show for over the last three years either. Therefore, it's fair to say that revenue growth has definitely eluded the company recently.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 1.3% each year over the next three years. That's shaping up to be similar to the 1.9% each year growth forecast for the broader industry.

With this in mind, it makes sense that Telia Company's P/S is closely matching its industry peers. 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

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A Telia Company'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.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Telia Company (of which 1 is potentially serious!) you should know about.

If these risks are making you reconsider your opinion on Telia Company, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.