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3 Reasons to Sell TDS and 1 Stock to Buy Instead

By: StockStory

March 20, 2025 at 05:14 AM EDT

TDS Cover Image

The past six months have been a windfall for Telephone and Data Systems’s shareholders. The company’s stock price has jumped 54.8%, hitting $35.55 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is there a buying opportunity in Telephone and Data Systems, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

We’re happy investors have made money, but we're swiping left on Telephone and Data Systems for now. Here are three reasons why TDS doesn't excite us and a stock we'd rather own.

Why Do We Think Telephone and Data Systems Will Underperform?

Operating primarily through its majority-owned subsidiary UScellular and wholly-owned TDS Telecom, Telephone and Data Systems (NYSE: TDS) provides wireless, broadband, video, and voice communications services to 4.6 million wireless and 1.2 million broadband customers across the United States.

1. Revenue Spiraling Downwards

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Telephone and Data Systems’s demand was weak over the last four years as its sales fell at a 1.3% annual rate. This was below our standards and signals it’s a low quality business. Telephone and Data Systems Quarterly Revenue

2. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Telephone and Data Systems’s full-year EPS turned negative over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Telephone and Data Systems’s low margin of safety could leave its stock price susceptible to large downswings.

Telephone and Data Systems Trailing 12-Month EPS (GAAP)

3. High Debt Levels Increase Risk

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Telephone and Data Systems’s $5.10 billion of debt exceeds the $364 million of cash on its balance sheet. Furthermore, its 23× net-debt-to-EBITDA ratio (based on its EBITDA of $202 million over the last 12 months) shows the company is overleveraged.

Telephone and Data Systems Net Debt Position

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Telephone and Data Systems could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Telephone and Data Systems can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of Telephone and Data Systems, we’ll be cheering from the sidelines. Following the recent surge, the stock trades at 3× forward EV-to-EBITDA (or $35.55 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find better investment opportunities elsewhere. Let us point you toward a top digital advertising platform riding the creator economy.

Stocks We Like More Than Telephone and Data Systems

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.

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