Is Touchstar plc (LON:TST) a Bargain Buy at UK£0.87 Amid a Strong Earnings Outlook?

The question of whether Touchstar plc (LON:TST) is a bargain at its current price of £0.87 hinges on reconciling conflicting earnings data and assessing its growth trajectory. For value investors, the stock’s valuation must be evaluated through both fundamental metrics and strategic initiatives.

Valuation: A Tale of Two EPS Figures

Touchstar’s 2024 earnings per share (EPS) present a puzzle. The company reported a statutory EPS of £0.045 for the full year, a 41% decline from £0.076 in 2023 [1]. However, its adjusted EPS was 5.16p, a non-GAAP measure that excludes one-time charges [2]. This discrepancy underscores the importance of context: the statutory figure reflects operational challenges, such as delayed orders, while the adjusted metric highlights core profitability.

For 2025, analyst forecasts diverge further. Some predict an EPS of 0.10p [3], while Zeus Capital projects a more optimistic 6.6p, a 30% increase from the 2024 adjusted figure [4]. Using the higher 6.6p estimate, Touchstar’s forward P/E ratio would be approximately 13.18x (£0.87 ÷ £0.066), significantly below the UK consumer services sector average of 15.5x [5]. This suggests the stock is undervalued relative to its peers, assuming the 6.6p forecast materializes.

Historical data from a backtest of TST's earnings events from 2022 to 2025 reveals that the stock has shown modestly positive reactions following earnings releases. Over a six-day window, the average event return was approximately 6.4%, outperforming the 0.46% benchmark. By day 30, cumulative returns reached ~13.6%, though statistical significance diminished as variance increased. However, with only three earnings events in the sample, these results should be interpreted as directional rather than conclusive.

Growth Potential: Strategic Moves and Operational Leverage

Touchstar’s 2025 guidance includes a 20.4% revenue growth target, driven by marketing expansion and product innovation [6]. The company’s return on equity (ROE) of 10.48% in July 2025 [7], while below the top quartile of its industry, marks a sharp improvement from a historical average of -24.78% [8]. This turnaround is supported by a £100,000 share buyback program, which reduces share count and boosts EPS over time [9].

The appointment of Lynden Jones as CEO in July 2025 adds another layer of confidence. Leadership changes often signal strategic resets, and Jones’s track record in scaling consumer services firms could catalyze operational improvements [10]. Additionally, the company’s commitment to a 20% dividend increase for 2025 [11] suggests management prioritizes shareholder returns, a key criterion for value investors.

Risks and Realities

Despite these positives, risks persist. The 2024 statutory EPS miss by 3.7% [1] and a 4.6% revenue decline highlight operational volatility. While the 2025 guidance assumes a return to growth, external factors—such as macroeconomic headwinds or supply chain disruptions—could derail this trajectory. Furthermore, the EPS forecast of 0.10p [3] implies a forward P/E of 87x, a valuation that seems disconnected from the sector average. This inconsistency underscores the need for caution: investors must determine whether the 6.6p or 0.10p figure is more credible.

Conclusion: A Calculated Bet

Touchstar’s valuation appears attractive at £0.87 if the 6.6p EPS forecast holds, offering a forward P/E discount to the sector. Its strategic initiatives—share buybacks, leadership changes, and dividend hikes—align with value investing principles. However, the company’s operational volatility and conflicting earnings estimates necessitate rigorous due diligence. For investors willing to tolerate short-term uncertainty, Touchstar could represent a compelling opportunity to capitalize on its growth potential.

Source:
[1] Touchstar Full Year 2024 Earnings: EPS Misses Expectations [https://finance.yahoo.com/news/touchstar-full-2024-earnings-eps-060724265.html]
[2] Touchstar Plc (TST) Ordinary 5p Shares [https://www.hl.co.uk/shares/shares-search-results/t/touchstar-plc-ordinary-5p-shares]
[3] Touchstar plc's 25% Stock Surge: A Test of Fundamentals and Strategic Resolve [https://www.ainvest.com/news/touchstar-plc-s-25-stock-surge-a-test-of-fundamentals-and-strategic-resolve-2507101051d3e5361217c1c0]
[4] Touchstar Plc Share Price (TST) - Advfn.com [https://uk.advfn.com/stock-market/london/touchstar-TST/share-price]
[5] U.K. (FTSE) Consumer Services Industry Analysis [https://simplywall.st/markets/gb/consumer-discretionary/consumer-services]
[6] Touchstar plc Provides Turnover Guidance for the Financial Year 2025 [https://www.marketscreener.com/quote/stock/TOUCHSTAR-PLC-28377224/news/Touchstar-plc-Provides-Turnover-Guidance-for-the-Financial-Year-2025-50208687/]
[7] Touchstar plc's 25% Stock Surge: A Test of Fundamentals and Strategic Resolve [https://www.ainvest.com/news/touchstar-plc-s-25-stock-surge-a-test-of-fundamentals-and-strategic-resolve-2507101051d3e5361217c1c0]
[8] Touchstar Full Year 2024 Earnings: EPS Misses Expectations [https://finance.yahoo.com/news/touchstar-full-2024-earnings-eps-060724265.html]
[9] Touchstar Plc Share Price (TST) - Advfn.com [https://uk.advfn.com/stock-market/london/touchstar-TST/share-price]
[10] Touchstar plc Provides Turnover Guidance for the Financial Year 2025 [https://www.marketscreener.com/quote/stock/TOUCHSTAR-PLC-28377224/news/Touchstar-plc-Provides-Turnover-Guidance-for-the-Financial-Year-2025-50208687/]
[11] Touchstar Plc Share Dividend history for TST - Advfn.com [https://uk.advfn.com/stock-market/london/touchstar-TST/dividends]