Telesat Corporation (NASDAQ:TSAT) shares have had a horrible month, losing 25% after a relatively good period beforehand. The good news is that in the last year, the stock has shone bright like a diamond, gaining 112%.
After such a large drop in price, given about half the companies operating in the United States' Telecom industry have price-to-sales ratios (or "P/S") above 1.3x, you may consider Telesat as an attractive investment with its 0.6x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for Telesat
What Does Telesat's Recent Performance Look Like?
Telesat 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. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Telesat.How Is Telesat's Revenue Growth Trending?
Telesat's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 19%. As a result, revenue from three years ago have also fallen 25% 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 5.0% per year during the coming three years according to the three analysts following the company. With the industry predicted to deliver 94% growth per annum, that's a disappointing outcome.
In light of this, it's understandable that Telesat's P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
The Key Takeaway
The southerly movements of Telesat's shares means its P/S is now sitting at a pretty low level. 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.
As we suspected, our examination of Telesat's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Telesat's poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
And what about other risks? Every company has them, and we've spotted 3 warning signs for Telesat (of which 2 are potentially serious!) you should know about.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.