Is T-Mobile a Good Stock to Buy Now?

Network service provider T-Mobile US, Inc. (NASDAQ:TMUS) is investing substantial resources into pulling market share away from its competitors. It has a singular goal: to dominate the global telecommunications industry. 

Fortunately for T-Mobile and its shareholders, the company is in a good spot to achieve this objective. After all, it is already the largest telecommunications company in the world by market cap, which currently stands at $260.48 billion.

That is significantly higher than T-Mobile’s nearest U.S. competitor. Verizon Communications Inc. (NYSE:VZ) has a market cap of just $185.22 billion, and Comcast Corp (NASDAQ: CMCSA) is trailing in third place at $163.62 billion. 

By all indications, T-Mobile is likely to retain its #1 ranking and expand its lead further. After all, the company has a wide moat, and it appears that business leaders have unlocked a secret to attracting and retaining mobile customers that other carriers cannot duplicate. 

For example, earlier this year, T-Mobile added 1.2 million postpaid net customers, which was better than the industry average. The company’s net postpaid phone customers grew by 532,000 and it enrolled a net 405,000 high-speed customers, both of which eclipse the rest of the industry. 

The question for investors is this: Can T-Mobile keep up the pace of growth and deliver consistent profits? In other words, is T-Mobile a good stock a buy now? 

Is T-Mobile Growing?

From a financial perspective, the best word to describe T-Mobile is “inconsistent.”

In fiscal 2020, the company posted $68.40 billion in total revenues, which represented 52% growth from the prior year. Better still, T-Mobile reported a 16% year-over-year increase in total net customer additions to an industry-leading 5.63 million.

Net customer additions was the highest in four years, and it is credited to T-Mobile’s success in retaining 25% of Sprint’s postpaid customer traffic.

T-Mobile’s success with growing its customer base continued into fiscal 2021. The company added 5.84 million total net customers, which ranked as the highest in five years. Total customers climbed to another record-breaking figure, and resulted in a 17.1% increase in its top line results to $80.12 billion. 

A year later in fiscal 2022 the streak continued when net customer additions were reported at their highest point ever, totaling 6.76 million. Although there was a marginal slowdown in overall revenues, service figures related to core operations continued to climb. 

While all of this was happening, bottom-line GAAP results weren’t especially impressive and, in fact, declined for three consecutive years as a result of merger-related costs.

The real slowdown came last year, in fiscal 2023. Though T-Mobile added 5.93 million net customers, it represented a significant drop compared to the prior year.

On a brighter note, service revenues continued to rise and net income grew by a whopping 221.1% year-over-year to $8.32 billion. This broke the negative trend of the previous three years. 

T-Mobile’s biggest accomplishment for 2023 is widely considered to be unrelated to financials. The company succeeded in covering 300 million people with Ultra Capacity 5G, and it added more 5G miles than AT&T and Verizon combined.

Last year, the network added 2.1 million high-speed net internet customers and ended the year with 4.8 million high-speed internet customers. 

Those are wins for achieving long-term objectives, especially since T-Mobile hasn’t sacrificed performance for volume. Performance assessment bodies Ookla and Opensignal clearly agreed because T-Mobile’s network swept every category in their comprehensive evaluations. 

Is T-Mobile a Good Stock to Buy Now?

T-Mobile is a good stock to buy now with a perfect piotroski score of 9, which emphasized very stable financials.

On a valuation basis, the stock is fairly valued with the consensus among 29 analysts being that fair value sits at $218 per share.

Perhaps of concern to value-oriented investors is the 27x price-to-earnings ratio which is elevated for such a large firm in the industry but net income is forecast to rise at 15.4% annually over the next five years, and so the multiple when compared to growth is not especially concerning.

There has been a slight dip in sentiment recently with four analysts revising their estimates lower for the coming quarter.

Nonetheless, the stock pays shareholders a reasonable 1.61% dividend yield that equates to $3.52 per share and has a low payout ratio of just 24%, suggesting it’s a stable and trustworthy income stock.

It also trades with relatively low volatility though has the hallmarks of being slightly overbought technically at the moment.

Looking to the future, T-Mobile upper management is eyeing further growth of its market share. Specifically, it hopes to leverage its 5G prowess to gain an edge over the competition. While top line performance has failed to overly impress industry analysts, T-Mobile’s recent bottom-line bounce is quite promising. 

Shares are sitting at 19.09x forward non-GAAP earnings, which is stretched if compared with the industry average. However, when compared to T-Mobile’s own five-year average of 38.06x, TMUS stock is trading at at a relatively discounted level. The majority of Wall Street analysts have rated T-Mobile stock a buy and forecast modest upside over the coming 12 months.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.