Toople Plc (LSE:TOOP), a GBP£2.06M small-cap, operates in the telecommunications market which has experienced slower top-line growth in the past decade due to the declining high-margin call service but increasing low-margin data usage. Telco analysts are forecasting for the entire industry, negative growth in the upcoming year , and a strong near-term growth of 23.53% over the next couple of years. This rate is larger than the growth rate of the UK stock market as a whole. Today, I’ll take you through the energy sector growth expectations, and also determine whether Toople is a laggard or leader relative to its telco sector peers. View our latest analysis for Toople
What’s the catalyst for Toople’s sector growth?
Innovations and technological developments allow telco companies to be more cost-competitive. However, this has become a necessity given that the overall growth in the sector is stagnating, and often the only way to maintain profitability is through cost-cutting. In the previous year, the industry endured negative growth of -31.09%, underperforming the UK market growth of 11.51%. Toople lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means Toople may be trading cheaper than its peers.
Is Toople and the sector relatively cheap?
The telco industry is trading at a PE ratio of 21x, relatively similar to the rest of the UK stock market PE of 18x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a higher 21.43% compared to the market’s 12.77%, potentially illustrative of a turnaround. Since Toople’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Toople’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Toople recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Toople as part of your portfolio. However, if you’re relatively concentrated in telco, you may want to value Toople based on its cash flows to determine if it is overpriced based on its current growth outlook.
Are you a potential investor? If Toople has been on your watchlist for a while, now may be the time to enter into the stock, if you like its ability to deliver growth and are not highly concentrated in the telco industry. Before you make a decision on the stock, take a look at Toople’s cash flows and assess whether the stock is trading at a fair price.