Telecom Argentina SA Stock Is Estimated To Be Fairly Valued

Author's Avatar
May 16, 2021
Article's Main Image

The stock of Telecom Argentina SA (NYSE:TEO, 30-year Financials) is believed to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $5.15 per share and the market cap of $2.2 billion, Telecom Argentina SA stock is estimated to be fairly valued. GF Value for Telecom Argentina SA is shown in the chart below.

US09PY.png?1621152722

Because Telecom Argentina SA is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 17.3% over the past five years.

Link: These companies may deliever higher future returns at reduced risk.

Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Telecom Argentina SA has a cash-to-debt ratio of 0.16, which is worse than 75% of the companies in Telecommunication Services industry. GuruFocus ranks the overall financial strength of Telecom Argentina SA at 4 out of 10, which indicates that the financial strength of Telecom Argentina SA is poor. This is the debt and cash of Telecom Argentina SA over the past years:

1621152722241.png

Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Telecom Argentina SA has been profitable 8 years over the past 10 years. During the past 12 months, the company had revenues of $3.9 billion and loss of $0.026 a share. Its operating margin of 8.19% in the middle range of the companies in Telecommunication Services industry. Overall, GuruFocus ranks Telecom Argentina SA's profitability as strong. This is the revenue and net income of Telecom Argentina SA over the past years:

1621152722624.png

One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Telecom Argentina SA is 17.3%, which ranks better than 88% of the companies in Telecommunication Services industry. The 3-year average EBITDA growth is 11.2%, which ranks in the middle range of the companies in Telecommunication Services industry.

Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Telecom Argentina SA's return on invested capital is 0.33, and its cost of capital is 1.95. The historical ROIC vs WACC comparison of Telecom Argentina SA is shown below:

1621152723037.png

In summary, Telecom Argentina SA (NYSE:TEO, 30-year Financials) stock appears to be fairly valued. The company's financial condition is poor and its profitability is strong. Its growth ranks in the middle range of the companies in Telecommunication Services industry. To learn more about Telecom Argentina SA stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.