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Is This Famous Canadian Telecom Stock Really a Strong Buy Right Now?

If you happen to be looking for a Canadian stock soaring past its 52-week high, the following major telecoms company listed on the TSX index has you covered. With a modest dividend yield and some key defensive stats, stacking shares in Rogers Communications (TSX:RCI.B)(NYSE:RCI) can still offer some upside.

Solid year-on-year returns of 16% put this evergreen Canadian telecom ticker ahead of the pack: the industry saw returns over the last 12 months of just 6.4% as a whole. Meanwhile, investor favourite Rogers Communications’s one-year past earnings growth of 43.8%, likewise, wipes the floor with the industry’s contraction of 7% as well as beats its own negligible in-house five-year average growth in earnings of 0.1%.

However, my inner cynic sees a modest 9.3% expected annual growth in earnings as a sign that Rogers Communications simply had a good year. The main issue for long-term investors would be that Rogers Communications holds a lot of debt: it’s currently at a comparative level of 202.4% of net worth.

Is this stock a strong buy right now?

Debt and a slowdown in outlook aside, the real reason I wouldn’t buy Rogers Communications stock today is its valuation: just going by its PEG of 2.1 times growth, it’s possible to see that intrinsic value is an issue here. If you want further confirmation of this, go take a look at a few more market fundamentals, such as a P/B ratio of 4.8 times book. Should you buy a stock that’s almost five times what it’s worth on paper?

One of the pitfalls of buying stocks on the TSX index — or, indeed, any other stock exchange — is that true valuation can be a hard thing to pin down at times. Rogers Communications stock has a P/E of 19.4 times earnings, which alone would not qualify as much of an overvaluation, while its share is actually discounted by 22% at the moment — if you go by the future cash flow value, that is.

There’s a great mix of stats for this stock at the moment. Lovers of passive income should be aware of a tasty, if modest, dividend yield of 2.65%, with good 10-year stability and an increase across that period. In terms of quality, a high ROE of 25% mixes nicely with an EPS of $3.73. Just looking at these figures reminds one of why this is one of the most popular telecoms stocks on TSX index.

Looking at momentum, we can see that Rogers Communications gained 3.40% in the last five days at the time of writing, while its beta of 0.32 indicates the kind of low volatility that investors who like to buy and hold might look for in a forever stock.

The bottom line

Investors still on the fence should compare the above figures with those of major rival, Telus (TSX:T)(NYSE:TU). The stats for the latter stock look good on their own, and when compared with Rogers Communication it’s a toss-up as to which is the stronger buy. Look at the better value for Telus: it has a P/E of 18.1 and P/B of 2.7 combined with its higher dividend yield of 4.79%. If you’re not concerned about diversification in this space, you could always stack both stocks.

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Fool contributor Victoria Hetherington has no position in any of the stocks mentioned.

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