Will the Telstra Corporation Ltd share price return to $6?


The share price of telecommunications giant Telstra Corporation Ltd (ASX: TLS) has arguably held up well when considered alongside other leading large-cap stocks such as Woolworths Limited (ASX: WOW), BHP Billiton Limited (ASX: BHP) and Woodside Petroleum Limited (ASX: WPL).

Despite the relative outperformance compared with these fellow Top 20 stocks, Telstra’s relative performance compared with the index has still seen Telstra underperform with a fall of around 14% over the past year, compared with a fall of about 7.5% in the index.

The share price – currently at $5.36 – is well below the $6 to $6.50 trading range which the stock traded between for much of the past 12 months.

Based on analyst consensus forecast data provided by Morningstar, Telstra is currently trading on a financial year (FY) 2016 price-to-earnings (PE) ratio of 15.3x and a fully franked dividend yield of 5.9%.

These metrics compare favourably against the S&P/ASX 300 (Index: ^AXKO) (ASX: XKO) forecast averages of 18.7x and 5.1% respectively.

So what are the chances that shareholders could see their stock’s share price rise back above $6?

At $6 per share, Telstra would trade on a FY 2016 PE and yield of 17.1x and 5.25% respectively.

Meanwhile, at $6.50, Telstra would trade on a prospective PE and yield of 18.5x and 4.8% respectively.

Essentially, assuming Telstra deserves to trade in line with market averages – a scenario which would indeed seem justified given the group’s prospects, quality and size – there would appear to be reasonable scope for the share price to trade once again in the $6 region.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. 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. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.