TELUS (TSX:T): Is the Recent Stock Move Justified by Its Current Valuation?

Something caught your eye when TELUS (TSX:T) stock ticked higher lately? You are not alone. While there is no major event at play today, recent movement in TELUS shares has investors wondering if the market is signaling a new direction. Sometimes these subtle shifts set the tone for bigger moves down the line, especially in an industry as steady as Canadian telecom.

Over the past year, TELUS shares have risen by 15%, and year-to-date gains are around 17%. Short-term momentum has built up with positive returns this month and over the past quarter. This contrasts with a slower three-year period where the stock is still playing catch-up. Recent revenue and profit growth have started to attract more attention as the company turns a corner from previous sluggishness.

After a year of bouncing back, is TELUS trading at a bargain compared to its value? Or are investors already pricing in the company’s next act?

Most Popular Narrative: 1% Undervalued

According to community narrative, TELUS is viewed as slightly undervalued, with analysts projecting the stock’s fair worth just above current market levels. This small discount depends on optimistic assumptions about recurring revenue and margin expansion.

Sustained investment in network modernization, with a $2B commitment to expand broadband in key markets and asset monetization through the Terrion tower partnership, is expected to drive high incremental returns, operational efficiencies, and deleveraging. As capital intensity moderates, this should result in improving free cash flow and net margin expansion.

Curious about what is fueling TELUS's current valuation? The narrative points to bold moves and ambitious growth strategies. However, only a handful of critical financial assumptions explain why analysts say it is only slightly below fair value. Interested in discovering which future forecasts really determine the price? The answer may surprise you.

Result: Fair Value of $23.34 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts. However, competitive wireless pricing and high capital requirements could undermine revenue growth. These factors may put pressure on TELUS's long-term margins and earnings potential. Find out about the key risks to this TELUS narrative.

Another View: Discounted Cash Flow Perspective

While the multiples approach suggests TELUS is a bit expensive, our DCF model offers a different perspective. According to this method, the stock is trading well below its estimated fair value. Could this approach reveal something that others overlook?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out TELUS for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own TELUS Narrative

If our take does not quite align with your outlook, there is always an opportunity to investigate the numbers yourself and craft your own story in just a few minutes. do it your way.

A great starting point for your TELUS research is our analysis highlighting 3 key rewards and 3 important warning signs that could impact your investment decision.

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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.

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