Telco Stocks Showing Why Valuation Matters

Come find out what happens when unexpected news collides with a premium valuation.

| More on:
The Motley Fool

It’s a bad day out there for Canada’s big telecomm companies.  Who can remember a day when Rogers (TSX:RCI.B), Telus (TSX:T), and BCE (TSX:BCE) were down by 9.3%, 7.1%, and 3.7% respectively?  Downward moves like these seem to be reserved exclusively for gold companies only these days.

Today’s action is of course a result of Verizon’s announcement that they have made a bid for Wind Mobile, an indication that the U.S. giant is coming to Canada.

Even though Verizon presents a significant competitive threat, some may be thinking this is a great opportunity to either add to or initiate a position in one of this country’s great companies.

Before you take the plunge however, please consider where these stocks stand relative to their historical valuations.  This comparison is made in the table below:

Company Name

Current P/B

10 Yr. Avg P/B






Telus (TSX:T)




Rogers (TSX:RCI.B)




Shaw (TSX:SJR.B)




Source:  Capital IQ

As you can see, all three of Canada’s big wireless players have been trading at a premium valuation to their long-term averages.  Not only this, but the premium was at least partly justified by the growth offered by the wireless business contained within each.  The very business that is now under siege.  This is evidenced by the discount at which Shaw Communications currently trades.  Shaw doesn’t have a wireless business.

Foolish Takeaway

With Verizon looming, wireless growth is unlikely to continue for the incumbents.  Quite the opposite.  Each can be expected to not only lose market share, but wireless margins can also be expected to decline.  This premium valuation, could quickly turn into a discount, just like Shaw.  Shaw is up on the day by-the-way.  Valuation matters!

Canada’s telecom space is a haven for income seeking investors.  To add some diversity to your income-producing portfolio, simply click here to download our FREE report “13 High Yielding Stocks to Buy Today”.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Iain Butler does not own any of the companies mentioned in this report.  The Motley Fool has no position in any stocks mentioned at this time.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Payday ringed on a calendar
Dividend Stocks

3 Top TSX Passive-Income Stocks That Pay Out Every Month

Here are some of the best TSX stocks for passive monthly income. Investors should explore to see if they're a…

Read more »

edit Sale sign, value, discount
Dividend Stocks

3 Remarkably Cheap TSX Stocks to Buy Right Now

These three cheap TSX stocks are some of the best buys on the TSX, and yet their share price is…

Read more »

think thought consider
Dividend Stocks

This Dividend Stock Could Create $1,353 in Passive Income in 2024

This dividend stock can create massive passive income from two sources, so don't miss out before a recovery in 2024!

Read more »

Increasing yield
Dividend Stocks

TFSA Investors: Buy This Top Bank Stock for High-Yielding Dividends

Generate a superior passive-income stream by investing in this high-yielding dividend stock from Canada’s Big Six banks.

Read more »

grow money, wealth build
Dividend Stocks

2 of the Best TSX Dividend Stocks I Plan on Holding Forever

High-yield TSX dividend stocks, such as Enbridge, offer you tasty yields and trade at significant discounts to consensus price targets.

Read more »


CNR Stock: Should You Buy Today?

Canadian National Railway has been hit in recent quarters, as economic growth has slowed, with CNR stock declining 10% in…

Read more »

Family relationship with bond and care
Dividend Stocks

TFSA Investors: 3 Cheap Canadian Stocks for Retirees

These three Canadian stocks are super cheap for retirees looking for a great buy that will last the test of…

Read more »

calculate and analyze stock
Dividend Stocks

CPP Disability Benefits: Here’s How Much You Could Get

Not everybody can get CPP disability benefits. If you want some passive income, consider investing in Royal Bank of Canada…

Read more »