Subdued Growth No Barrier To Telephone and Data Systems, Inc. (NYSE:TDS) With Shares Advancing 25%

Despite an already strong run, Telephone and Data Systems, Inc. (NYSE:TDS) shares have been powering on, with a gain of 25% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 62% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Telephone and Data Systems' P/S ratio of 0.7x, since the median price-to-sales (or "P/S") ratio for the Wireless Telecom industry in the United States is also close to 0.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Telephone and Data Systems

How Has Telephone and Data Systems Performed Recently?

Telephone and Data Systems hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Telephone and Data Systems.

Do Revenue Forecasts Match The P/S Ratio?

Telephone and Data Systems' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.3%. The last three years don't look nice either as the company has shrunk revenue by 4.5% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 3.3% during the coming year according to the two analysts following the company. That's not great when the rest of the industry is expected to grow by 4.3%.

In light of this, it's somewhat alarming that Telephone and Data Systems' P/S sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

What Does Telephone and Data Systems' P/S Mean For Investors?

Telephone and Data Systems' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

It appears that Telephone and Data Systems currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

Before you take the next step, you should know about the 1 warning sign for Telephone and Data Systems that we have uncovered.

If these risks are making you reconsider your opinion on Telephone and Data Systems, 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.