The pros and cons of buying Telstra shares right now

Is this an opportunity calling?

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The Telstra Group Ltd (ASX: TLS) share price has seen a mixed performance over the past year, it's actually down by 3.4%. That compares to a fall of 0.4% for the S&P/ASX 200 Index (ASX: XJO).

It's an interesting situation because plenty of other well-known businesses have risen over the last 12 months. Think, Wesfarmers Ltd (ASX: WES), which is up 16%, the JB Hi-Fi Limited (ASX: JBH) share price (up 19%), and the Goodman Group (ASX: GMG) share price (up 27%).

After this period of underperformance, could now be a good time to look at an investment in Telstra shares?

Dialling in the positives

The ASX telco has achieved a very strong market position in mobile telecommunications in Australia. It claims to have the best mobile network, which has attracted the most subscribers. This allows it to generate the most revenue and then re-invest the most money into its network, ensuring it can continue to have the best network.

Telstra saw hundreds of thousands of new subscribers added in FY23 as well as an increase in average revenue per user (ARPU). FY23 postpaid handheld ARPU rose 5.4% year over year to $51.15.

The company has already built its 4G infrastructure, and it's making good progress with its 5G infrastructure. The more subscribers it gains, the better for margins it is because it's spreading the (fixed) costs across more users.  

The growth of its 5G network may also enable Telstra to offer a strong wireless broadband service and take market share from the NBN, which means Telstra could capture a lot more of the margin for home broadband customers.

Telstra has also been diversifying its earnings by expanding into categories like digital healthcare and cybersecurity. The ASX telco share recently acquired Digicel Pacific, giving the company exposure to Pacific island markets like Fiji.

The ASX telco share has committed to growing the dividend for shareholders over time if it can. In FY23, the business grew its annual dividend per share by 3% to 17 cents. That means it has a grossed-up dividend yield of just over 6%.

Negatives to consider about Telstra shares

The company has been able to increase prices in line with inflation for FY23 and FY24, but as inflation reduces, this could mean its revenue growth slows down.

Telstra's earnings are heading in the right direction. However, there's no guarantee that strong competition won't increase again in the future and hurt margins. However, Telstra's competitive position may help its market share and ability to increase prices.

Finally, I'll point out that the business isn't on an incredibly low price/earnings (P/E) ratio. According to the forecast on Commsec, the Telstra share price is valued at 22x FY24's estimated earnings. It's possible to find better value ASX defensive shares.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goodman Group and Wesfarmers. The Motley Fool Australia has positions in and has recommended Telstra Group and Wesfarmers. The Motley Fool Australia has recommended Goodman Group and Jb Hi-Fi. 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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