According to analysts, Gamma Communications (LSE:GAMA) is one of the FTSE 250’s hidden gems. The consensus is that the telecoms group is 46% undervalued. If this forecast is correct, it means someone making a £10,000 investment today (1 June) could see their stake grow to £14,600 within 12 months.

And as another potential added bonus, there could be (no guarantees) some income too. That’s because the company’s paid a dividend every year since 2014. But does this sound too good to be true? Let’s take a closer look.

What does it do?

Gamma Communications provides business-to-business cloud-based telephony, messaging, and video solutions.

And with the UK planning to shut down its old-fashioned copper-based Public Switch Telephone Network in January 2027, the group could be one of the biggest beneficiaries.

But to keep costs to a minimum, many smaller businesses are moving to a fibre alternative rather than a full cloud-based model. Although the group does supply a fibre solution, it earns a much bigger margin on its offering in the cloud.

Despite this, the group continues to grow rapidly. In 2025, it reported an 11% increase in both revenue and adjusted earnings per share (EPS). And as evidence of the stickiness of its customers, the group had recurring revenue of 89%. It also reported a very healthy return on capital employed of 27.8%.

Is it cheap?

As impressive as this might be, the stock’s not particularly cheap when measured against two of the biggest names in the telecoms industry. It trades on 13.8 times its 2025 earnings, compared to a multiple of 12.1 for Vodafone and 11.5 for BT (both have March 2026 financial years). And yet, as we have seen, analysts think the group’s worth significantly more than its current market cap of £860m.

However, we are not really comparing like with like here. Gamma Communications sells exclusively to businesses and the public sector, meaning it earns a much bigger margin. And at the end of 2025, it had net debt of only £9.3m, versus the billions shown on the balance sheets of its two peers.

Significant developments

Further evidence that it could be undervalued came on 15 May, when the company said it was in preliminary discussions with a consortium looking to buy the group. This followed a similar statement in April, when it disclosed that it was talking to “a number of interested counterparties” with a view to putting forward “a proposal that would deliver greater value to shareholders than pursuing a standalone independent strategy”.

But this poses a risk for investors. Undoubtedly, the speculation has helped pushed the group’s share price higher. However, should these discussions be terminated, it’s highly likely that there will be a sharp price correction.

Where does this leave us?

In my opinion, Gamma Communications is an excellent business that’s pursuing a sensible growth strategy, with an emphasis on reducing its reliance on the UK.

But as much as I like the company, I think it would be better to wait until there’s a conclusion to the current takeover discussions before deciding what to do. If the company’s going to be taken private, life as a shareholder is likely to be brief. And if the talks fail, the group’s shares will probably become a lot cheaper. When the position becomes clearer, I shall revisit the investment case.

Should you invest £5,000 in Gamma Communications Plc right now?

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James Beard does not hold any positions in the companies mentioned.