The telecommunications industry is dominated by a few large players, but all of them are at significantly cheaper share prices than their 2016 highs.
There is a lot to like about the telecommunications sector, it's a defensive industry with strong cashflows and recurring revenue. However, that doesn't mean it's impervious to steep share price declines.
Here are two of the main players and how they are tracking recently:
Telstra Corporation Ltd (ASX: TLS)
Telstra is the behemoth of the industry but is having trouble growing revenue and profit in recent years.
Its share price has fallen from $5.80 in July 2016 to today's $4.56. This fall in the share price obviously increases the attractiveness of the trailing dividend yield, which is now 9.71% when grossed-up for franking credits.
With the expected hit to earnings over the coming years with all of the capital expenditure, as well as the loss of the profitable copper network, the share price fall could be justified. There is also a fair chance of a cut to the dividend because it has a high payout ratio of above 100%.
In the long-term Telstra could grow nicely with the release of a 5G network and more connected devices like automated cars and the 'Internet of Things' growing within in our homes like smart TVs and fridges.
However, Telstra is currently trading at 14x FY17's estimated earnings, so it isn't a bargain for a business whose earnings are likely to reduce in the short term. I'm not a buyer, yet, of Telstra, although it's more attractive the lower it goes.
Vocus Group Ltd (ASX: VOC)
Vocus has fallen from $9.40 in May 2016 to today's $3.57, even though it looked like the worst was behind it when it reported its half year results earlier in February.
Vocus has a growing retail business and a network of useful cables connecting Australia, New Zealand and Asia. There are supposedly a number of benefits to be realised from the synergies of all the different companies it has acquired in recent years.
That hasn't stopped investors being unimpressed and selling down the shares for their own reasons.
Assuming there isn't any further bad news to be announced, I think Vocus is trading at fairly attractive value. It's currently trading at 10.6x FY17's estimated earnings with a grossed-up dividend yield of 5.6%. Vocus has a much better chance of growing earnings than Telstra over the short-term in my opinion.
Foolish takeaway
Being able to execute on the idea of 'buying low' means being willing to buy a company when the market isn't in favour of the business. At the current prices, I'd rather buy Vocus than Telstra.
