Last week we examined the Rule of 72 on approximating how long it would take to double your money. This week we will look at some of the more common numbers you can look at when evaluating a stock. For this post, we will look at three cellular providers as of November 11, 2020. The three that we will look at are T-Mobile, Verizon, and AT&T. Now, I am not endorsing any of these three, but if you do your analysis, one of the three may be a good fit for you.
First, we will look at the price per share on the three starting with T-Mobile (TMUS), selling for $121.72, a share being the highest dollar amount. Next listed for this post was Verizon (VZ), going for $61.10, a share of the second-highest by dollar amount. And the third stock is AT&T (T), selling for the lowest amount at $28.85 per share. Now for companies similar in the services they provide as far as cellular, the prices are all over the place, as you can see, anywhere from just under $30 to over $120 per share.
But which is the cheapest? By looking at a glance, most would say T is the cheapest at $28.85 per share. But let’s examine the Price to Earnings Ratio or P/E. Here TMUS is 41.94, meaning it sells almost 42 times its earnings, making it the most expensive by dollar amount and earnings. Then next is T at 18.98 or almost 19 times its earnings. And finally, VZ sells the cheapest by the P/E but second by dollar amount at 13.82 or almost 14 times earnings. And with the P/E may lead to the range of the prices and the percentage that range to the high price for 52 weeks. TMUS ranged between $63.50 and $127.03 or 50.01%. Next was T ranging from $26.08 to $39.70 or 34.31%. And third and the smallest range is VZ with $48.84 to $62.22 or 21.5%.
The next area we will look at is dividends and cash flow. Now, starting with TMUS, they pay no dividend and have a negative $2,612 million cash flow. It is good that TMUS pays no dividend as they do not have a positive cash flow. Then there is VZ that has a dividend payment that is 4.11% with a cash flow of $19,109 million. This is not when you consider that VZ has a dividend payout of 55.94%, meaning they pay approximately 56% of their earnings out in dividends. And rounding out the three is T with the highest dividend at 7.21% with a cash flow of $27,956 million. That does look to be the best, but now you must consider that T has a dividend payout rate of 137.75%, meaning when they pay their dividends, they dip into their retained earnings, which could mean the dividend may not be sustainable. More needs to be examined here to make a proper determination.
For their efficiency, we look at a few different things. One is the return on assets, or ROA, with TMUS at 3.76%, VZ at 6.64%, and T at 3.42%. This means VZ has the best return of the three when compared to its assets. The return on equity, or ROE, TMUS at 5.95%, VZ is 29.72%, and T is 6.37%. Here VZ has the best return on its equity by far. Then there is the debt component of the company. Here TMUS has a debt to equity of 159.08 and total debt of approximately $102.59 billion. This means TMUS has about 1.6 times the debt as compared to its equity. Then VZ has approximately $138.51 billion and a debt to equity of 208.19 or almost 2.1 times the debt to its equity. And finally, T has the most debt at $187.67 billion, leading to the lowest debt to equity of 96.21 or about $1 of debt to $1 of equity.
While not an exhaustive look at these three stocks, it does give you an idea of what to look at when examining them. My personal preference on the three is VZ due to its cash flow, dividend payout, dividend yield, and P/E ratio. T is a good buy, but with such a high dividend payout, I am not certain that the 7% plus dividend is sustainable. And TMUS is not that appealing to me with the highest P/E ratio and the fact it has a negative cash flow. But these are some of my concerns about these there, what are yours?
If you need assistance or have any questions reach out to a fee-only Registered Financial Consultant.
