With a daily gain of 3.53%, a 3-month gain of 9.17%, and an Earnings Per Share (EPS) of 5.02, T-Mobile US Inc (TMUS, Financial) has attracted the attention of many investors. The question on everyone's mind is: Is the stock fairly valued? In this article, we will delve into a comprehensive valuation analysis of T-Mobile US (TMUS) to provide an informed answer to this question. So, let's get started!
Company Overview
T-Mobile US Inc (TMUS, Financial), a result of Deutsche Telekom merging its T-Mobile USA unit with prepaid specialist MetroPCS in 2013, has been on an aggressive expansion spree. This has resulted in rapid customer growth and an expanded geographic footprint. The firm now serves 73 million postpaid and 21 million prepaid phone customers, equating to around 30% of the U.S. retail wireless market. The firm also provides wholesale service to resellers. With a current stock price of $138.86, T-Mobile US (TMUS) has a market cap of $163.40 billion, making it a significant player in the telecommunications industry.
Understanding the GF Value
The GF Value is a unique measure that provides an estimation of the intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor considering the company's past returns and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to our valuation method, T-Mobile US (TMUS, Financial) is estimated to be fairly valued. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with poor financial strength carries a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are great ways to understand its financial strength. T-Mobile US has a cash-to-debt ratio of 0.06, which ranks worse than 83.46% of 393 companies in the Telecommunication Services industry. The overall financial strength of T-Mobile US is 4 out of 10, which indicates that the financial strength of T-Mobile US is poor.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. T-Mobile US has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $78.60 billion and Earnings Per Share (EPS) of $5.02. Its operating margin is 15.63%, which ranks better than 68.73% of 387 companies in the Telecommunication Services industry. Overall, GuruFocus ranks the profitability of T-Mobile US at 8 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of T-Mobile US is 6.7%, which ranks better than 63.32% of 379 companies in the Telecommunication Services industry. The 3-year average EBITDA growth rate is 3.9%, which ranks worse than 51.34% of 335 companies in the Telecommunication Services industry.
ROIC vs WACC
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 4.68 while its WACC came in at 6.12.
Conclusion
In conclusion, the stock of T-Mobile US (TMUS, Financial) is estimated to be fairly valued. The company's financial condition is poor, and its profitability is strong. Its growth ranks worse than 51.34% of 335 companies in the Telecommunication Services industry. To learn more about T-Mobile US stock, you can check out its 30-Year Financials here.
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