Stock Valuation: Telefonica SA (TEF)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
TELEFONICA SA Spain/
XMAD
Communication Services – Communication Services – Telecom Services EUR6.80
@ 06 Sep 2018
COMPANY PROFILE Telefonica SA is a telecommunications group which provides fixed and mobile telephony, broadband, internet, data traffic, pay TV and other digital services. It serves over 300 million clients across more than 20 countries.

Telefonica is the incumbent fixed-line and wireless telephone operator in Spain. It has the second-most wireless subscribers in the United Kingdom, and with the acquisition of E-Plus, it is the largest wireless operator in Germany. It has substantial fixed-line and wireless assets in Latin America, including being the largest telecom operator in Brazil, where 63% of its customers reside. However, they only provide about 49% of its revenue and 50% of EBITDA.

Stock Code TEF
Stock Valuation Below

Telefonica Price to Sales

The Price to Sales Ratio is a commonly used valuation indicator for a stock. While not as popular as the Price to Earnings Ratio, it overcomes some of the limitations of the PE Ratio in that it can be used even when the company is not making a profit or only making minimal profits. However, it should not be used by itself because a company may be achieving sales but not profits.
At the price of EUR6.80 as at 06 Sep 2018, Telefonica Sa is trading at a Price to Sales Ratio of 0.7 times last 12 months sales.  This is a 35.0% discount to current fair Price to Sales Ratio of 1.1 times.
Is the stock undervalued? One should not just look at one indicator to determine the fair value of a stock.
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Company description, historical financial statements data and price data are from gurufocus.com or moneycontrol.com. Estimates are from marketscreener.com – Thomson Reuters.
Disclaimer: This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither ProThinker nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of ProThinker. Copyright(c) 2018. All rights reserved.

 

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