Telstra’s (ASX: TLS) share price touched a high of $5.15 yesterday. As the chart below shows, the last time the share price was at these levels was in June 2005. Excluding dividends, if you had purchased Telstra eight years ago today, you would only be up 5.76%, so for long-term shareholders it has certainly been a rough ride. Meanwhile, savvy investors who saw the opportunity in late 2010 and early 2011 snapped up stock at sub-$3 levels.
The past is in the past
Of course dwelling on Telstra’s past isn’t useful in analysing its future. On that score, the future looks good for Telstra. As reported today on BusinessDay.com.au, Telstra is expected to announce further job cuts as it looks to reduce costs in its legacy businesses such as the Yellow Pages business Sensis division and the fixed copper line division. A leaner structure, coupled with the significant cash flow to be received from the NBN Co purchase of its assets, will allow Telstra management to deploy funds towards growth areas such as cloud computing and data centres. This opportunity to strategically re-focus the company leads to a positive outlook for Telstra’s future.
The mid and smaller end of the telco sector is also firing on all cylinders, with customers’ appetite for bandwidth and data services growing strongly. Investors looking for exposure to this growing market might take a closer look at companies such as M2 Telecommunications (ASX: MTU), TPG Telecom (ASX: TPM) and iiNet (ASX: IIN), as they potentially have better growth profiles than the already large Telstra.
While investing in a sector experiencing growth is desirable, and the share prices of most telco companies are up strongly in the past 12 months, as always investors need to consider valuations and what is a reasonable price to pay.
With its legendary, fully franked 28 cent dividend, Telstra is the darling of Aussie investors. But with its share price skyrocketing over the past year, is Telstra past its prime? Click here for our brand-new report: “Is It Time to Sell Telstra?”
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