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Is Now An Opportune Moment To Examine Telephone and Data Systems, Inc. (NYSE:TDS)?

Simply Wall St

Telephone and Data Systems, Inc. (NYSE:TDS), which is in the wireless telecom business, and is based in United States, saw significant share price movement during recent months on the NYSE, rising to highs of US$27.39 and falling to the lows of US$21.93. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Telephone and Data Systems's current trading price of US$23.26 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Telephone and Data Systems’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Telephone and Data Systems

Is Telephone and Data Systems still cheap?

The stock seems fairly valued at the moment according to my relative valuation model. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 20.95x is currently trading in-line with its industry peers’ ratio, which means if you buy Telephone and Data Systems today, you’d be paying a relatively fair price for it. Although, there may be an opportunity to buy in the future. This is because Telephone and Data Systems’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

Can we expect growth from Telephone and Data Systems?

NYSE:TDS Past and Future Earnings, November 15th 2019

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for Telephone and Data Systems, at least in the near future.

What this means for you:

Are you a shareholder? TDS seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on TDS, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on TDS for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on TDS should the price fluctuate below its true value.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Telephone and Data Systems. You can find everything you need to know about Telephone and Data Systems in the latest infographic research report. If you are no longer interested in Telephone and Data Systems, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.