TELUS International (Cda) Inc. (NYSE:TIXT) Not Lagging Market On Growth Or Pricing

TELUS International (Cda) Inc.'s (NYSE:TIXT) price-to-earnings (or "P/E") ratio of 54.1x might make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 16x and even P/E's below 9x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for TELUS International (Cda) as its earnings have been falling quicker than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

View our latest analysis for TELUS International (Cda)

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

Is There Enough Growth For TELUS International (Cda)?

In order to justify its P/E ratio, TELUS International (Cda) would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 73% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 68% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 63% over the next year. That's shaping up to be materially higher than the 10% growth forecast for the broader market.

With this information, we can see why TELUS International (Cda) is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From TELUS International (Cda)'s P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of TELUS International (Cda)'s analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 4 warning signs we've spotted with TELUS International (Cda) (including 1 which is significant).

If these risks are making you reconsider your opinion on TELUS International (Cda), 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.