Is Telstra Corporation Ltd a buy?

With shares in telecommunications giant Telstra Corporation Ltd (ASX: TLS) climbing higher again today (after already climbing 83% in the past three years), investors will be wondering if there’s more to come.

Thanks to its big dividend and ongoing growth from both the Network Application Services (NAS) and International divisions, there appears a lot to like about this Aussie icon.

However if shares rebound in coming weeks (the company went ex-dividend yesterday and fell 3%), it’ll once again be trading at price levels not seen in over 12 years.

So right now it’s important to step back and objectively reassess whether, or not, the stock will be able to outperform the S&P/ASX 200 (INDEXASX: XJO) in the foreseeable future.

After all, as individual investors, our goal is to beat the market, not match it.

According to Morningstar, at $5.55, Telstra trades on a price to book ratio of 5, price-earnings to growth ratio, or PEG, of 10 and dividend yield of 5.4% fully franked.

Peter Lynch, a famous fund manager and legendary stock picker, looked for companies with PEG ratios of around 1 or below. So quite clearly, short-term earnings growth appears well and truly priced in.

In the longer term, Telstra is looking to leverage growth in Asia with joint-venture partnerships and investment in infrastructure. Although promising, it’s hard to make any accurate long-term forecasts of this strategy right now, so I’d prefer to err on the side of caution and wait until we get some more insight into its progress before buying shares.

Foolish Takeaway

Telstra offers a great dividend at a time when interest rates from term deposits and savings accounts are lacklustre. However, at over $5.50 Telstra’s short and medium-term potential appears priced into the stock, therefore I do not think it’s a good buy. If you bought in earlier (at a cheaper price) however, there’s no reason not to keep holding it for those juicy fully franked dividend yields!

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the companies in this articles. 

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