Shareholders Should Be Pleased With TELUS Corporation's (TSE:T) Price

When close to half the companies in Canada have price-to-earnings ratios (or "P/E's") below 13x, you may consider TELUS Corporation (TSE:T) as a stock to avoid entirely with its 39.4x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

TELUS has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for TELUS

Want the full picture on analyst estimates for the company? Then our free report on TELUS will help you uncover what's on the horizon.

Does Growth Match The High P/E?

In order to justify its P/E ratio, TELUS would need to produce outstanding growth well in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 50%. As a result, earnings from three years ago have also fallen 40% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 31% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 9.3% per annum growth forecast for the broader market.

With this information, we can see why TELUS is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On TELUS' P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that TELUS maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 5 warning signs for TELUS (2 shouldn't be ignored!) that you should be aware of before investing here.

You might be able to find a better investment than TELUS. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.