Evaluating TSS (TSSI) Valuation Following Incremental $5 Million Term Loan for Capital Expansion

TSS (TSSI) has taken a strategic step by securing an incremental $5 million term loan through its subsidiary, VTC, L.L.C. This amendment to its existing credit agreement provides fresh liquidity to support ongoing capital expenditure plans.

See our latest analysis for TSS.

This liquidity boost comes as TSS continues to chart a steady path, with the stock closing at $17.97 and a modest 1-year total shareholder return of just over 2%. Recent months have seen relatively muted share price moves. The news around its debt amendment may be shifting investor focus toward growth potential and improved capital flexibility. Looking back, long-term shareholders have still enjoyed substantial total returns of over 28% across three years.

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The question for investors now is whether TSS shares are trading below their true value after this financing move, or if the market has already factored in the company’s potential for long-term growth.

Price-to-Earnings of 56.5x: Is it justified?

TSS currently trades at a price-to-earnings (PE) ratio of 56.5x, notably higher than both its sector and peer averages. At a last close of $17.97, shareholders are buying into strong recent earnings growth, but at a clear premium compared to similar companies.

The price-to-earnings ratio tells investors how much they are paying for each dollar of a company’s earnings. For TSS, this high PE reflects lofty expectations, possibly due to the company’s explosive earnings growth in the past year and a run of profitable years following a turnaround.

However, TSS’s PE ratio of 56.5x far exceeds the US IT industry average of 33.2x and the peer average of 27.5x. This signals that the stock is expensive relative to typical benchmarks, meaning there are high growth or profitability assumptions already included in the share price.

See what the numbers say about this price — find out in our valuation breakdown.

Result: Price-to-Earnings of 56.5x (OVERVALUED)

However, sluggish recent share performance and a lack of clear revenue or net income growth could challenge the optimism reflected in TSS’s current valuation.

Find out about the key risks to this TSS narrative.

Another View: Discounted Cash Flow Signals Undervaluation

While TSS looks expensive on its price-to-earnings ratio, our SWS DCF model offers a different perspective. Based on projected future cash flows, the DCF model suggests TSS shares are actually trading at a 41.9% discount to their fair value of $30.93. Could the market be overlooking the company’s intrinsic value?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out TSS for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own TSS Narrative

If you see the story differently or want to dig into the numbers on your own terms, you can quickly build your own take in just a few minutes. Do it your way

A great starting point for your TSS research is our analysis highlighting 2 key rewards and 3 important warning signs that could impact your investment decision.

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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.

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