Subdued Growth No Barrier To United States Cellular Corporation (NYSE:USM) With Shares Advancing 53%

United States Cellular Corporation (NYSE:USM) shareholders have had their patience rewarded with a 53% share price jump in the last month. The last month tops off a massive increase of 276% in the last year.

Although its price has surged higher, it's still not a stretch to say that United States Cellular's price-to-sales (or "P/S") ratio of 1.2x right now seems quite "middle-of-the-road" compared to the Wireless Telecom industry in the United States, where the median P/S ratio is around 1x. 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 United States Cellular

How Has United States Cellular Performed Recently?

With revenue that's retreating more than the industry's average of late, United States Cellular has been very sluggish. It might be that many expect the dismal revenue performance to revert back to industry averages soon, which has kept the P/S from falling. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

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

Do Revenue Forecasts Match The P/S Ratio?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.6%. As a result, revenue from three years ago have also fallen 5.5% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 2.6% during the coming year according to the six analysts following the company. With the industry predicted to deliver 2.9% growth, that's a disappointing outcome.

In light of this, it's somewhat alarming that United States Cellular's 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.

The Key Takeaway

United States Cellular's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

While United States Cellular's P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue 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 we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

It is also worth noting that we have found 2 warning signs for United States Cellular (1 shouldn't be ignored!) that you need to take into consideration.

If these risks are making you reconsider your opinion on United States Cellular, 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.