TeleChoice International Limited (SGX:T41) Soars 26% But It's A Story Of Risk Vs Reward

Explore TeleChoice International's Fair Values from the Community and select yours

Despite an already strong run, TeleChoice International Limited (SGX:T41) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 149% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, it's still not a stretch to say that TeleChoice International's price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Electronic industry in Singapore, where the median P/S ratio is around 0.5x. 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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Check out our latest analysis for TeleChoice International

What Does TeleChoice International's Recent Performance Look Like?

TeleChoice International certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on TeleChoice International will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on TeleChoice International's earnings, revenue and cash flow.

How Is TeleChoice International's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like TeleChoice International's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 54% last year. The latest three year period has also seen an excellent 130% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 23% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that TeleChoice International is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Its shares have lifted substantially and now TeleChoice International's P/S is back within range of the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

To our surprise, TeleChoice International revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

Before you settle on your opinion, we've discovered 2 warning signs for TeleChoice International 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.