Telesat (NasdaqGS:TSAT) is back in focus after its subsidiary secured a C$2.3b Arctic connectivity contract, the largest in the company’s history, prompting a special call to discuss the deal and an updated financial outlook.

The contract news has arrived while Telesat’s share price has been on a strong run, with an 85.46% year to date share price return and a very large 3 year total shareholder return of around 7x, although the 90 day share price return dipped slightly despite the recent 5.46% 1 day move.

If this kind of contract win has you thinking about where else growth stories might emerge, it could be worth scanning for 56 AI infrastructure stocks

After Telesat’s contract driven jump and strong multi year shareholder returns, the harder call now is timing. Does it make more sense to accept today’s price or wait in hope of a more comfortable entry ahead?

Preferred Price to Sales Multiple of 3x: Is It Justified for Telesat?

Telesat currently trades on a P/S ratio of 3x, which screens as expensive against both the wider US Telecom industry and a narrower group of peers, even after the recent contract driven share price move to $54.08.

The P/S multiple compares the company’s market value to its annual revenue. It is often used when a business is unprofitable, as is the case for Telesat, because earnings based measures such as P/E are not meaningful when a company reports losses.

On this measure, the market is assigning Telesat a richer sales based valuation than many telecom stocks. The stock is described as expensive versus the US Telecom industry average P/S of 1.4x and also versus a peer average of 1.9x. Yet the SWS fair P/S estimate of 6.9x is described as materially higher than the current 3x level. This signals a valuation that could shift if the market view on the company’s revenue profile changes over time.

Result: Price-to-Sales of 3x (OVERVALUED)

However, the Telesat story still carries clear risks, including ongoing net losses of CA$185.311m and heavy reliance on GEO revenue of CA$383.554m as the LEO segment scales.

Another View on Telesat’s DCF Value Signal

The first look paints Telesat as expensive on a simple P/S check. Yet the SWS DCF model points in the opposite direction, with the stock at $54.08 said to be trading at a very large 93.9% discount to an estimated future cash flow value of $891.66. Which signal should carry more weight for you?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Telesat for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 51 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

If this mixed picture on Telesat leaves you unsure, take a closer look at the underlying data and decide quickly where you stand. To balance the positives and the flags on your radar, review the 2 key rewards and 3 important warning signs.

Looking for more investment ideas beyond Telesat?

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• Target potential value opportunities by running through 51 high quality undervalued stocks to find companies that combine quality fundamentals with pricing that may not fully reflect them.
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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.