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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 $36.81 and falling to the lows of $30.73. 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 $32.08 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.
What is Telephone and Data Systems worth?
The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Telephone and Data Systems’s ratio of 26.61x is trading slightly below its industry peers’ ratio of 27.88x, which means if you buy Telephone and Data Systems today, you’d be paying a reasonable price for it. And if you believe Telephone and Data Systems should be trading in this range, then there isn’t much room for the share price grow beyond where it’s currently trading. So, is there another chance to buy low in the future? Given that Telephone and Data Systems’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Telephone and Data Systems look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a relatively muted profit growth of 8.9% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for Telephone and Data Systems, at least in the short term.
What this means for you:
Are you a shareholder? It seems like the market has already priced in TDS’s growth outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at TDS? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping tabs on TDS, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.
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 email@example.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.