MENU

4 small stocks that have smashed Telstra

Many investors are drawn to owning blue chip stocks. This is completely understandable given their generally solid balance sheets, commanding market share position and maintainable earnings.

However, while these top tier firms have many attractive attributes and characteristics, it is often the lesser known, smaller second tier or perhaps even third tier firms that prove to be the more profitable investments.

Consider the performance of telecommunication giant Telstra (ASX: TLS) compared with four of its smaller telco rivals. As the chart shows, Telstra’s share price growth has been far less impressive than these rivals. While the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has returned 6% over the past five years and Telstra has returned 20%, the share prices of rival firms are up between 266% and 2793%!

In the past five years Telstra has grown its revenues by around $100 million, from $25.4 billion to $25.5 billion, while its profits have declined from $4.1 billion to $3.9 billion. Likewise, earnings per share (EPS) have also declined, falling from 32.9 cents per share (cps) to 30.7 cps.

In comparison the four small rivals have smashed Telstra’s performance.

Amcom (ASX: AMM) reported revenue and NPAT (from its operating units) of $53 million and $7.9 million respectively in financial year (FY) 2009. For the financial year to June 2013, Amcom reported revenues of $158 million and NPAT of $20.8 million. On an EPS basis, this translated to an EPS increase from 4.4 cps to 8.5 cps over the period.

iiNet (ASX: IIN) reported revenue and underlying NPAT of $418 million and $25.6 million respectively in FY 2009. For the FY 2013 year, revenue and NPAT grew to $941 million and $60.9 million respectively. Meanwhile underlying EPS has grown from 16.9 cps to 37.8 cps.

M2 Telecommunications (ASX: MTU) reported revenues and NPAT of $203 million and $7.5 million in FY 2009. For the year just ended, M2 reported revenues of $681 million and underlying NPAT of $58.4 million. EPS has increased from 8.56 cps to 36.3 cps over the five-year period.

TPG Telecom (ASX: TPM) reported revenues and NPAT of $481 million and $17.7 million in FY 2009. For FY 2013, the company reported $724 million in revenues and an adjusted NPAT of $166 million. On an EPS basis, returns have risen from 2.5 cps to 20.9 cps — an outstanding increase!

telstra

Source: Google Finance

Foolish takeaway

While a blue-chip portfolio has a reasonable chance of keeping up with the wider index, often it is smaller stocks that offer the greatest potential rewards. Investors prepared to experience a slightly higher level of risk also have the potential to experience higher rewards.

Telstra may not be providing the outsize returns it has in the past, but there are still great companies out there. Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading


Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.