The stock of T-Mobile US (NAS:TMUS, 30-year Financials) is estimated to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $144.51 per share and the market cap of $180.2 billion, T-Mobile US stock is believed to be significantly overvalued. GF Value for T-Mobile US is shown in the chart below.
Because T-Mobile US is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 8.3% over the past three years and is estimated to grow 7.73% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. T-Mobile US has a cash-to-debt ratio of 0.06, which is worse than 87% of the companies in Telecommunication Services industry. The overall financial strength of T-Mobile US is 3 out of 10, which indicates that the financial strength of T-Mobile US is poor. This is the debt and cash of T-Mobile US over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. T-Mobile US has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $77 billion and earnings of $2.43 a share. Its operating margin is 9.93%, which ranks in the middle range of the companies in Telecommunication Services industry. Overall, GuruFocus ranks the profitability of T-Mobile US at 6 out of 10, which indicates fair profitability. This is the revenue and net income of T-Mobile US over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. T-Mobile US's 3-year average revenue growth rate is better than 75% of the companies in Telecommunication Services industry. T-Mobile US's 3-year average EBITDA growth rate is 12.5%, which ranks in the middle range of the companies in Telecommunication Services industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, T-Mobile US's ROIC is 3.62 while its WACC came in at 4.38. The historical ROIC vs WACC comparison of T-Mobile US is shown below:
In summary, T-Mobile US (NAS:TMUS, 30-year Financials) stock appears to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Telecommunication Services industry. To learn more about T-Mobile US stock, you can check out its 30-year Financials here.
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