If you missed my initial post on Teleperformance, I highly recommend checking it out first👇
Teleperformance (🇫🇷 Ticker: TEP) stock just got absolutely crushed last week, falling over 15% after management lowered their 2025 outlook. The stock is now down nearly 80% from its 2022 highs.
The current share price of EUR 68 doesn’t make sense to me. With an EV/EBITDA of just 4.6x and a P/E ratio of 8.5x, the stock is trading at a deep discount relative to its 10-year historical valuation range.
I think this low multiple would only be justified if investors expected the business and its profitability to collapse, something highly unlikely for a cash-rich company with 21% annual FCF growth over the past five years.
When you compare that cash generation power to the current enterprise value, you're looking at a 16% FCF yield.
That’s not just cheap, it’s crisis level valuation and provides investors with a significant margin of safety. Additionally, investors now can lock in an 6% dividend yield while waiting for shares to close the gap from their current valuation.
But, Teleperformance isn’t just sitting around waiting to be disrupted. The company has moved decisively, acquiring it’s competitor Majorel for EUR 3 billion in 2023 and ZP, a fast-growing leader in language solutions and technology platforms for the deaf and hard-of-hearing in the US, for USD 490 million. Beyond acquisitions, it has launched over 250 internal AI initiatives, partnered with leading AI firms, and rolled out large scale employee upskilling programs to stay ahead of the curve.
From my own experience developing AI applications and working with diverse customers over the past years, I firmly believe the future is a blend of AI and human interaction with human connection remaining essential for sensitive, complex, or emotionally charged customer engagements.
That’s why I believe the future of the BPO industry (and many others) lies not in full automation, but in a hybrid model combining AI’s efficiency with human empathy. This is exactly where Teleperformance seems to be focusing its efforts, also highlighted in a recent interview with Thomas Mackenbrock, Global Deputy CEO.
That said, there’s still real uncertainty around whether these investments will pay off and whether the company can truly evolve into an AI-enabled leader. It’s also worth noting that, despite being a multibillion dollar industry, the BPO market is highly operationally intensive and price competitive, which is reflected in its thin margins.
However, within its peer group, Teleperformance still remains a leader, standing out with stronger cash generation and a significantly more attractive valuation today, especially compared to its US peer Concentrix (Ticker: CNXC).
Interestingly, institutional investors like Tweedy Browne, known as "the oldest value investing firm on Wall Street," have recently increased their stake in Teleperformance.
Conclusion
The company faces real challenges. The risk, like always, is not zero.
But, the key question I ask myself is:
Is the stock down 80% because the business is dying or because investors think it might?
If you're a contrarian investor, this is exactly the kind of setup that can get interesting: a feared sector and hated stock, doomed valuation, strong FCF, and clear signs the company is adapting.
You don’t often get a chance to buy a industry leader at 3x P/FCF and collect a 6% dividend while you wait to see if the story turns.
Disclaimer: This publication and its authors are not licensed investment professionals. The information provided in this publication is for educational purposes only and should not be construed as investment advice. We do not make any recommendations regarding the suitability of particular investments. Before making any investment decision, it is important to do your own research. RhinoInsight assume no liability for any investment decisions made based on the information provided in this newsletter.
I really hope they can turn it around and sentiment changes.
Do you think the market’s extreme reaction to the lowered outlook is less about the current numbers and more about a "fear of the unknown" regarding how much of Teleperformance's revenue could eventually be automated away by the very AI they are currently implementing?
I’ve subscribed and would be happy to support each other. :)
Jorrit