Yahoo Finance Telesat Corporation's (TSE:TSAT) 26% Dip In Price Shows Sentiment Is Matching Earnings
To the annoyance of some shareholders, Telesat Corporation (TSE:TSAT) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.
Since its price has dipped substantially, Telesat's price-to-earnings (or "P/E") ratio of 9.7x might make it look like a buy right now compared to the market in Canada, where around half of the companies have P/E ratios above 13x and even P/E's above 31x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
For instance, Telesat's receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.
View our latest analysis for Telesat
Although there are no analyst estimates available for Telesat, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
Does Growth Match The Low P/E?
In order to justify its P/E ratio, Telesat would need to produce sluggish growth that's trailing the market.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 54%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 12% shows it's noticeably less attractive on an annualised basis.
With this information, we can see why Telesat is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.
The Final Word
Telesat's P/E has taken a tumble along with its share price. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
As we suspected, our examination of Telesat revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.
Having said that, be aware Telesat is showing 4 warning signs in our investment analysis, and 2 of those make us uncomfortable.
If you're unsure about the strength of Telesat's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
