Is T-Mobile a Smart Opportunity After 15% Drop Amidst 5G Expansion News?

• Curious if T-Mobile US is a bargain or overpriced right now? Let’s break down what you need to know before making any moves.
• After years of strong performance, T-Mobile's stock has pulled back, down 2.1% in the last week, 6.3% over the past month, and nearly 15% over the last year. It is up over 60% in five years.
• Recent news headlines have centered on T-Mobile’s ongoing 5G expansion and new partnerships, signaling continued investment in network leadership and potential for new revenue sources. Meanwhile, competitive moves in the telecom sector and rumors of future mergers or collaborations have kept investors watching closely.
• On our valuation scorecard, T-Mobile US scores 4/6 for being undervalued on 4 of 6 checks. This puts it on solid footing ahead of a deeper look at valuation approaches. We will also reveal a powerful way to judge value that even the experts sometimes miss, so stay tuned.

Find out why T-Mobile US's -14.7% return over the last year is lagging behind its peers.

Approach 1: T-Mobile US Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by forecasting its future cash flows and then discounting those cash flows back to today to reflect their present value. This approach is particularly relevant for companies like T-Mobile US, where cash flow generation is a key determinant of long-term value.

T-Mobile US currently generates annual Free Cash Flow (FCF) of approximately $14.0 billion. According to analyst forecasts and extrapolations, this FCF is expected to steadily grow in the coming years, reaching around $24.1 billion by 2029 and continuing higher based on long-term projections. The DCF model used here applies a "2 Stage Free Cash Flow to Equity" methodology to reflect both short-term analyst estimates and longer-term expectations derived from historical trends.

After discounting these future cash flows back to today, T-Mobile US is estimated to have an intrinsic value of $529.28 per share. This represents a substantial discount to its current market price, suggesting the stock is undervalued by 60.9% at current levels.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests T-Mobile US is undervalued by 60.9%. Track this in your watchlist or portfolio, or discover 927 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for T-Mobile US.

Approach 2: T-Mobile US Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used metric for valuing profitable companies like T-Mobile US. It gives investors a quick sense of how much they are paying for each dollar of earnings. A lower PE often suggests better value, but only when growth prospects and company quality are also considered.

When estimating a “normal” or “fair” PE, investors must look beyond current profitability. Expectations for future earnings growth, industry risks, and overall business stability all shape what level of PE is justified. For example, fast-growing or highly stable companies tend to command higher PE ratios, while riskier or slower-growing businesses typically trade at a discount.

As of today, T-Mobile US trades on a PE multiple of 19.5x. This is above the Wireless Telecom industry average of 18.3x, but below the average of its direct peers, which stands at 29.4x. Simply Wall St’s proprietary “Fair Ratio” factors in not only T-Mobile’s earnings growth outlook and risks, but also profitability, market cap, and broader industry dynamics. For T-Mobile US, the Fair Ratio is calculated at 16.4x.

The Fair Ratio provides a more accurate benchmark for value when compared to simple peer or industry averages because it adjusts for the unique mix of growth, profit margins, and risks in T-Mobile’s business. By contrasting the Fair Ratio (16.4x) with the current PE (19.5x), it suggests that T-Mobile US stock is modestly overvalued relative to its tailored fundamentals.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1433 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your T-Mobile US Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is your story or perspective about a company, brought to life with assumptions about things like future revenue, earnings, margins, and ultimately a personal fair value estimate. Think of it as connecting what you believe about T-Mobile US’s future to what you think the share price should be today.

With Narratives, the numbers are backed by your logic and reasoning, making investing less about guesswork and more about considered judgement. Narratives are available within the Simply Wall St Community page, where millions of investors can easily create, compare, and update these forecasts.

This tool helps you make smarter decisions by letting you compare your fair value to the current market price. This signals when you might consider buying or selling. Narratives automatically update as new information, like earnings reports or major news, is released, so your outlook can evolve with the company.

For example, some investors currently believe T-Mobile US could be fairly valued at up to $309.00 based on strong growth in 5G and broadband, while others see fair value closer to $200.00 due to concerns over profitability and competition. Which Narrative fits what you believe?

Do you think there's more to the story for T-Mobile US? Head over to our Community to see what others are saying!

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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