Today we're going to take a closer look at large-cap Telecommunications company T-Mobile US, whose shares are currently trading at $152.8. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:
T-Mobile US, Inc., together with its subsidiaries, provides mobile communications services in the United States, Puerto Rico, and the United States Virgin Islands. The company belongs to the Telecommunications sector, which has an average price to earnings (P/E) ratio of 23.78 and an average price to book (P/B) ratio of 3.46. In contrast, T-Mobile US has a trailing 12 month P/E ratio of 23.7 and a P/B ratio of 2.74.
When we divideT-Mobile US's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.31, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
Growing Revenues With Increasing Reinvestment in the Business:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $43,310 | $44,998 | $68,397 | $80,118 | $79,571 | $78,353 |
| Revenue Growth | n/a | 3.9% | 52.0% | 17.14% | -0.68% | -1.53% |
| Gross Margins | 12% | 13% | 10% | 9% | 8% | 17% |
| Operating Margins | 12% | 13% | 10% | 9% | 8% | 17% |
| Net Margins | 7% | 8% | 4% | 4% | 3% | 10% |
| Net Income (MM) | $2,888 | $3,468 | $3,064 | $3,024 | $2,590 | $7,780 |
| Net Interest Expense (MM) | $835 | $727 | $2,483 | $3,189 | -$33 | $58 |
| Depreciation & Amort. (MM) | $6,486 | $6,616 | $14,151 | $16,383 | $13,651 | $12,762 |
| Earnings Per Share | $3.36 | $4.02 | $2.65 | $2.41 | $2.06 | $6.44 |
| EPS Growth | n/a | 19.64% | -34.08% | -9.06% | -14.52% | 212.62% |
| Diluted Shares (MM) | 858 | 863 | 1,155 | 1,255 | 1,255 | 1,081 |
| Free Cash Flow (MM) | -$1,642 | $433 | -$2,394 | $1,591 | $2,811 | $6,439 |
| Capital Expenditures (MM) | $5,541 | $6,391 | $11,034 | $12,326 | $13,970 | $11,597 |
| Current Ratio | 0.81 | 0.74 | 1.1 | 0.89 | 0.77 | 0.86 |
| Long Term Debt (MM) | $12,124 | $10,958 | $61,830 | $67,076 | $65,301 | $68,035 |
| Net Debt / EBITDA | 1.0 | 0.85 | 2.75 | 2.79 | 3.32 | 2.58 |
T-Mobile US has growing revenues and increasing reinvestment in the business, a pattern of improving cash flows, and a strong EPS growth trend. However, the firm suffers from slimmer gross margins than its peers and weak operating margins with a positive growth rate. Finally, we note that T-Mobile US has significant leverage.
