Is the Telstra share price cheap compared to other ASX 200 shares?

Is the telco a cheap ASX 200 share right now? Let’s take a look.

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Key points

  • Telstra is one of the ASX's most famous blue chip shares
  • As such, the Telstra share price is a widely watched ASX metric
  • But are Telstra shares cheap at their current valuations? Let's do some comparisons...

Since its gradual privatisation in the 1990s and 2000s, Telstra Corporation Ltd (ASX: TLS) has been one of the bluest blue-chip shares on the S&P/ASX 200 Index (ASX: XJO). From its days as Telecom Australia, this company has never experienced any other life than a mature telecommunications company with a dominant market share. But that isn’t to say that the Telstra share price (and investors) hasn’t had a few ups and downs along the way. After all, Telstra is a company that has had a share price of $8.75 and $2.66 at various points of its life.

Today, Telstra shares are trading at $3.92, down 0.25% for the day. So at this level, could you call the Telstra share price expensive or cheap compared to other ASX shares? Let’s check it out.

Is the Telstra share price cheap right now?

One of the best ways of measuring an ASX share’s valuation is by using the price-to-earnings (P/E) ratio. This is especially true for a mature company like Telstra.

Telstra’s current share price gives it a P/E ratio of 31.95. This means that at the current share price, investors are paying the equivalent of $31.95 for every $1 Telstra makes in earnings.

So is this expensive for Telstra shares? Well, arguably yes, compared to some other ASX 200 blue chips at least. Take Commonwealth Bank of Australia (ASX: CBA). It currently has the highest P/E ratio out of the big four ASX bank shares. But this is still only at around 17.3. The largest share on the ASX 200 is BHP Group Ltd (ASX: BHP). But BHP shares currently have a P/E ratio of just 9.36.

But that’s banks and miners. These two sectors often tend to trade at lower P/E multiples than the rest of the market. CSL Limited (ASX: CSL) currently has a P/E ratio of 38.17. Woolworths Group Ltd (ASX: WOW) has an even higher metric of 42.92. Now that’s getting closer to Telstra shares.

So ultimately, Telstra’s valuation can be rather subjective. Looking at a P/E ratio of 31.95 for Telstra alone may lead some investors to think the telco is overvalued.

A dividend investor might just find out that Telstra is currently offering a fully franked dividend yield of more than 4% right now and not need to know anything else. Others might say it’s cheaper than Woolies and thus worth a look. ASX broker Morgan Stanley is one who thinks the Telstra share price is a buy today.

In the meantime, the current Telstra share price gives this ASX 200 telco a market capitalisation of $45.6 billion.

Motley Fool contributor Sebastian Bowen has positions in Telstra Corporation Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL Ltd. The Motley Fool Australia has positions in and has recommended Telstra Corporation Limited. 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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