We've been asking ourselves recently if the market has placed a fair valuation on T-Mobile US. Let's dive into some of the fundamental values of this Large-Cap Telecommunications company to determine if there might be an opportunity here for value-minded investors.
T-Mobile US's Valuation Is in Line With Its Sector Averages:
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 23.2 and a P/B ratio of 2.97.
When we divideT-Mobile US's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.67, 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.
Strong Revenue Growth but Not Enough Current Assets to Cover Current Liabilities:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $43,310 | $44,998 | $68,397 | $80,118 | $79,571 | $78,353 |
| Operating Margins | 12% | 13% | 10% | 9% | 8% | 17% |
| Net Margins | 7% | 8% | 4% | 4% | 3% | 10% |
| Net Income (M) | $2,888 | $3,468 | $3,064 | $3,024 | $2,590 | $7,780 |
| Net Interest Expense (M) | $835 | $727 | $2,483 | $3,189 | -$3,364 | -$3,308 |
| Depreciation & Amort. (M) | $6,486 | $6,616 | $14,151 | $16,383 | $13,651 | $12,762 |
| Diluted Shares (M) | 856 | 864 | 125 | 1,255 | 1,255 | 1,174 |
| Earnings Per Share | $3.36 | $4.02 | $24.48 | $2.41 | $2.06 | $6.44 |
| EPS Growth | n/a | 19.64% | 508.96% | -90.16% | -14.52% | 212.62% |
| Avg. Price | $63.27 | $75.39 | $103.89 | $130.23 | $125.25 | $159.84 |
| P/E Ratio | 18.61 | 18.57 | 38.76 | 53.81 | 60.51 | 24.7 |
| CAPEX (M) | $5,541 | $6,391 | $11,034 | $12,326 | $13,970 | $11,597 |
| EV / EBITDA | 6.87 | 7.13 | 7.43 | 9.95 | 11.09 | 10.08 |
| Total Debt (M) | $28,198 | $25,444 | $75,704 | $76,438 | $71,960 | $75,298 |
| Net Debt / EBITDA | 2.29 | 1.94 | 3.14 | 3.0 | 3.34 | 2.67 |
| Current Ratio | 0.81 | 0.74 | 1.1 | 0.89 | 0.77 | 0.86 |
T-Mobile US has rapidly growing revenues and increasing reinvestment in the business, decent operating margins with a positive growth rate, and a strong EPS growth trend. However, the firm has not enough current assets to cover current liabilities because its current ratio is 0.86. Finally, we note that T-Mobile US has significant leverage levels.
