TELUS (TSX:T) climbed higher after it, Canada’s third-largest telecommunications company, reported a strong fourth quarter. Profit and revenue were both higher, adding new wireless customers and seeing major growth across the board.
But is it all a rosy picture? Perhaps not. In fact, there are three things that Canadian investors should know before picking up TELUS stock.
Image source: Getty Images
1. Growth or cuts?
TELUS stock announced some great news for investors, with profit reaching $310 million in the last quarter. This was a 17% increase from the year before! Revenue also climbed to $5.2 billion up 2.8% from $5.06 billion.
Yet part of this growth in numbers came from major cuts. While other telecommunications companies have certainly had their fair share of cuts, TELUS stock cut an incredible 6,000 people last year. This came as good news for now, but perhaps not for later.
After all, this provides more of a solution for this year and its spending and cost structure. While analysts like that the company is being pro-active about costs, it’s whether it can turn those savings into growth.
2. Competition ahead
There is also the fear of further competition for the company’s third-place position. TELUS stock is already under pressure after a merger between Rogers and Shaw was approved. So far, TELUS stock doesn’t provide anything to show that customers will start seeking them out.
However, there is also another merger happening between Quebecor and Freedom Mobile. This would put the company in the fourth-largest telecommunications position, edging in on TELUS’s territory. Here is the stock caught in the middle, and there could be some serious issues on the way.
The biggest way? Price. The company will therefore have limited pricing power in the future, as well as pressure on margins. And it remains unclear how the stock will handle that pressure.
3. Risky business
TELUS stock also has a history of putting in a bit more risk than necessary to achieve higher growth. This included the company’s TELUS International arm to focus on tech companies and growth opportunities. The problem is it came out during the pandemic and has since come under increased trouble.
And it’s not just TELUS International. The company’s history of investing in companies and industries that are outside the telecom sector makes analysts believe the stock can put itself at risk. So, combine this with the competitive industry and lowering prices in that environment, and you could find TELUS stock is a bit unfavourable today.
Bottom line
These are just points that investors should know. It doesn’t necessarily mean that the company is a bad bet in the long run. After all, there are other positives coming for the company as well. This includes increasing immigration, which should prompt higher levels of subscription growth. It also includes more free cash generation as the bulk of the work is done for its fibre-to-the-home network. And that provides faster speeds at a lower cost.
The question will always be how it fits in your portfolio. And with a 6.55% dividend yield and shares still down 16% in the last year, it could certainly be one to consider.
