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Why the Telstra (ASX:TLS) share price looks cheap today

map of australia with golden 5G sitting on it representing telstra shares
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The Telstra Corporation Ltd (ASX: TLS) share price has been under pressure in 2020, but is the Aussie telco in the buy zone?

How has the Telstra share price performed this year?

The Telstra share price has slumped 21.0% lower in 2020 compared to a 12.3% fall in the S&P/ASX 200 Index (ASX: XJO).

That could mean the telco’s shares are cheap or there are some underlying issues that are weighing on investors’ minds.

What do the numbers say?

At the current Telstra share price of $2.83 per share, the company’s shares have a price-to-earnings (P/E) ratio of 18.5x. That on its own doesn’t tell us that much but let’s try to compare it to a fellow telco peer company.

Vocus Group Ltd (ASX: VOC) is an ASX-listed rival albeit with a market capitalisation of $2.2 billion compared to Telstra’s $33.7 billion.

Vocus’ full-year result was a mixed bag for investors. The telco made a statutory net loss after tax and minority investments of $178.2 million.

That saw earnings per share (EPS) fall to negative 28.74 cents with fully diluted underlying EPS of 16.04 cents per share.

That means at $3.51 per share, Vocus has an underlying P/E of 21.9x compared to 18.5x for Telstra.

That could mean Telstra is slightly undervalued relative to Vocus right now.

Is Telstra a cheap buy in September?

It’s hard to judge whether the Telstra share price is cheap based on just that one metric. However, the company did maintain its final dividend of 16 cents per share which is a positive signal for future earnings.

It’s also a signal that investors need as the TPG Telecom Ltd (ASX: TPG)-Vodafone merger looms large and NBN continues to cause the company headaches.

One saving grace could be the company’s leadership in the 5G network space. Telstra has emerged as a serious player in the growing technology and much of its future success could be based on 5G success in Australia.

I don’t think the Telstra share price is overvalued at $2.83 per share. The shift towards more working from home and a potential population boom in regional Australia could be good news for its network services.

I think Telstra could be a good pickup for investors looking for dividends right now. After all, blue chip ASX dividend shares like Telstra are hard to come by in the current market.

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Motley Fool contributor Ken Hall 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.

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