Should you sell TeleCommunication Systems (Nasdaq: TSYS) today?

The decision to sell a stock you've researched and followed for months or years is never easy. If you fall in love with your stock holdings, you risk becoming vulnerable to confirmation bias -- listening only to information that supports your theories, and rejecting any contradictions.

In 2004, longtime Fool Bill Mann called confirmation bias one of the most dangerous components of investing. This warning has helped my own personal investing throughout the Great Recession. Now, I want to help you identify potential sell signs on popular stocks within our 4-million-strong community.

Today, I'm laser-focused on TeleCommunication Systems, ready to evaluate its price, valuation, margins, and liquidity. Let's get started.

Don't sell on price
Over the past 12 months, TeleCommunication Systems is down 43.3% versus an S&P 500 return of 11.3%. Investors in TeleCommunication Systems are no doubt disappointed with their returns, but is now the time to cut and run? Not necessarily. Short-term underperformance alone is not a sell sign. The market may be missing the critical element of your TeleCommunication Systems investing thesis. For historical context, let's compare the company's recent price with its 52-week and five-year highs. I've also included a few other businesses in the same or related industries:


Recent Price

52-Week High

5-Year High

TeleCommunication Systems $4.85 $10.55 $10.60
Qualcomm (Nasdaq: QCOM) $47.72 $49.80 $56.90
Motorola (NYSE: MOT) $8.14 $8.74 $26.30

Source: Capital IQ, a division of Standard & Poor's.

As you can see, TeleCommunication Systems is down from its 52-week high. If you bought near the peak, now's the time to think back to why you bought it in the first place. If your reasons still hold true, you shouldn't sell based on this information alone.

Potential sell signs
First, let's look at the gross margins trend, which represents the amount of profit a company makes for each $1 in sales, after deducting all costs directly related to that sale. A deteriorating gross margin over time can indicate that competition has forced the company to lower prices, that it can't control costs, or that its whole industry's facing tough times. Here is TeleCommunication Systems' gross margin over the past five years:

Source: Capital IQ, a division of Standard & Poor's.

TeleCommunication Systems is clearly having issues maintaining its gross margin, which tends to dictate a company's overall profitability. The company's investors need to keep an eye on this troubling trend over the coming quarters.

Next, let's explore what other investors think about TeleCommunication Systems. We love the contrarian view here at, but we don't mind cheating off of our neighbors every once in a while. For this, we'll examine two metrics: Motley Fool CAPS ratings and short interest. The former tells us how's 170,000-strong community of individual analysts rates the stock. The latter shows what proportion of investors are betting that the stock will fall. I'm including other peer companies once again for context.


CAPS Rating

Short Interest (% of Float)

TeleCommunication Systems **** 7.1
Qualcomm **** 1.8
Motorola ** 1.6

Source: Capital IQ, a division of Standard & Poor's.

The Fool community is rather bullish on TeleCommunication Systems. We typically like to see our stocks rated at four or five stars. Anything below that is a less-than-bullish indicator. I highly recommend that you visit TeleCommunication Systems' stock pitch page to see the verbatim reasons behind the ratings.

Here, short interest is at a high 7.1%. This typically indicates that large institutional investors are betting against the stock.

Now, let's study TeleCommunication Systems' debt situation, with a little help from the debt-to-equity ratio. This metric tells us how much debt the company has taken on, relative to its overall capital structure.

Source: Capital IQ, a division of Standard & Poor's.

TeleCommunication Systems has been taking on some additional debt over the past five years. Even with spiking total equity over the same time, debt-to-equity has increased, as seen in the above chart. Based on the trend alone, that's a bad sign. I consider a debt-to-equity ratio below 50% to be healthy, though it varies by industry.  TeleCommunication Systems is above this level, at 92.5%.

The last metric I like to look at is the current ratio, which lets investors judge a company's short-term liquidity. If TeleCommunication Systems had to convert its current assets to cash in one year, how many times over could the company cover its current liabilities? As of the latest filing, TeleCommunication Systems has a current ratio of 1.64. This is a healthy sign. I like to see companies with current ratios equal to or greater than 1.5.

Finally, it's highly beneficial to determine whether TeleCommunication Systems belongs in your portfolio -- and to know how many similar businesses already occupy your stable of investments. If you haven't already, be sure to put your tickers into's free portfolio tracker, My Watchlist. You can get started right away by clicking here to add TeleCommunication Systems.

The recap

TeleCommunication Systems has failed three of the quick tests that would make it a sell. Does it mean you should sell your TeleCommunication Systems shares today solely because of this? Not necessarily, but keep your eye on these trends over the coming quarters.

Remember to add TeleCommunication Systems to My Watchlist to help you keep track of all our coverage of the company on

If you haven't had a chance yet, be sure to read this article detailing how I missed out on more than $100,000 in gains through wrong-headed selling.

Jeremy Phillips does not own shares of the companies mentioned.

The Fool owns shares of Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.