The Telstra Group Ltd (ASX: TLS) share price has risen more than 26% in the last four months, as the chart below shows. It's possible the ASX telco share may still be undervalued.
At a time when there is heightened uncertainty, a defensive ASX share like Telstra could be particularly appealing.
But, I'm not expecting Telstra's profits to be flat in the next few years, I'm expecting considerable growth from the ASX telco share.
While the business has risen significantly, I think there is scope for further growth when the market sees the company deliver on its potential. I'm confident on the business for three reasons.
Growing number of users
Telstra is Australia's leading telco, with its network having the widest coverage, the strongest 5G position and the best spectrum.
The strength of its network seems to be attracting a significant portion of new users to the business each year. In the six months to December 2024, the business added 119,000 users compared to its total at the end of FY24.
Winning over 100,000 new users is a great tailwind for revenue (and earnings) in my opinion.
If Australia's population continues growing at a relatively fast pace, I imagine that Telstra's user base can continue expanding strongly too.
Rising average revenue per user
Another tailwind for Telstra shares is that the business continues to increase prices for its mobile users. I wouldn't say that's a great strategy forever because it could lose price-conscious people to cheaper competition.
However, for now, it's helping boost the company's revenue.
It recently announced that it was increasing prices for postpaid users in FY26, with the increase being larger than the inflation rate. I think this is a good tailwind for Telstra's bottom line because it's getting more revenue from the same customer.
In the HY25 result, Telstra reported its ARPU for prepaid handheld users experienced a 6.5% increase from price rises.
Operating leverage
For me, the most promising thing about Telstra is its rising profit margins, as that allows net profit to grow faster than revenue. The more users it adds, the more its network costs can be spread, helping increase profit margins.
I think Telstra's profit margins can continue increasing over the next few years if it's able to ensure expenses don't rise as fast as revenue.
In the FY25 half-year result, total income grew 0.9%, underlying operating profit rose 5.8% to $4.2 billion and net profit after tax (NPAT) for owners of Telstra shares increased 6.5% to $1 billion. It's pleasing to see net profit rise faster than operating profit, which rose faster than revenue.
I'm excited by how much the company's net profit can grow in the coming years, which can help support a higher Telstra share price and fund larger dividends.
I still think Telstra shares are a buy today.
