The Telstra Group Ltd (ASX: TLS) share price rose to a 52-week high of $4.54 yesterday, which is an impressive feat considering all of the recent volatility. In recent times, I have called it out as an opportunity.
The ASX telco share has demonstrated its ability to be a defensive ASX share. Short-term share price movements are decided by what price buyers are willing to pay for shares. While investors have been moving out of some names, there have still been plenty of backers for Telstra who were probably attracted to its resilient earnings.
However, a business like Telstra (probably) isn't going to rise forever. A rising valuation can become a risk if it becomes too expensive.
But are Telstra shares too expensive to buy? I'll give you my view.
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Uninterrupted growth
There are plenty of businesses on the ASX exposed to earnings from other countries or the global economy as a whole. I'm thinking of businesses like BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO), Fortescue Ltd (ASX: FMG) and CSL Ltd (ASX: CSL). Pain in the economies of the US and/or China could be a headwind for the earnings of those businesses.
But, Telstra is the sort of business that can grow in different economic conditions because of the essential nature of what it offers to customers across households and businesses, in my view.
The business is the leader in the Australian telco space, with the most customers, the best spectrum assets and the widest network coverage. This allows Telstra to attract many thousands of new mobile customers every year. It's one of the reasons to like Telstra shares.
In the six months to 31 December 2024, Telstra reported that its total number of subscribers increased by 2.5%. The number of subscribers increased 119,000 from the second half of FY24. This helped Telstra's overall revenue increase by 0.9% year over year and the net profit for Telstra shareholders grew by 6.5% year over year.
Profit growth is not guaranteed of course, but it is forecast to continue. UBS projects that Telstra's net profit could increase by 10.2% in FY26 and then a further 5.6% in FY27. This could help fund the dividend grow to 21 cents per share in FY26, which may make next year's grossed-up dividend yield 6.6%, including franking credits.
Telstra share price valuation
Using UBS' estimates, the Telstra share price is valued at 21x FY26's estimated earnings.
After rising 5% in a month, it's not as cheap as it was. But, I do believe it would still represent good buying at this higher price, though it wouldn't be the first S&P/ASX 200 Index (ASX: XJO) I'd buy today.
