It’s a fall from grace that has captivated a nation. But is it the beginning of a comeback story that could earn investors some serious coin?
Telstra provides telecommunications and information services, including mobiles, internet, and pay television. It is also providing many investors some serious heartache through a continuing downward spiral of value.
The long-time blue chip and portfolio stalwart has fallen from $6.48 in 2015 to below $3, and in my opinion deservedly so.
In 2008, Telstra returned $0.30c in earnings per share with $0.28c paid out as a dividend. 10 years later and Telstra has grown earnings by only 10% to $0.34c per share and has already returned a diminished dividend of $0.27c for the 2018 financial year.
For a company with a monopolistic type presence and multiple competitive advantages, Telstra has wasted shareholders’ equity for the past decade.
With prices at multi-year lows, Telstra has a dividend yield of 7.9% and a P/E ratio of 9.30 suggesting bargain prices.
However, many investors have been stung by viewing Telstra’s share price slides as temporary, only to experience more slides themselves.
The reality is that Telstra has the infrastructure and capabilities to turn itself around. The decision on whether to invest in this company comes down to management and whether you think it can mirror Qantas Airways Limited’s (ASX:QAN) 5-year turnaround and share price resurgence.
Recent developments such as the emergence of 5G, the nearing completion of the NBN and a reduction in dividend payout ratio to invest more in business operations are all potential indicators of better shareholder returns.
So, whilst a comeback story is on the cards, I believe there are many more undervalued businesses that are not getting the positive news they deserve.
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Motley Fool contributor Matt Breen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. 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 Scott Phillips.