Is TELUS Stock a Screaming Buy or Value Trap After 17% Three-Year Collapse?
Investors watching TELUS (TSX:T) face a critical question: Has the Canadian telecom giant finally hit rock bottom, or does more pain lie ahead? The stock closed at C$18.92, showing mixed signals with a 5.2% gain over the past month but a brutal 17.4% decline over three years.
The numbers tell a conflicting story. TELUS scores just 2 out of 6 on Simply Wall St’s valuation framework, yet some analysis methods suggest the market has oversold this dividend stalwart. We break down multiple valuation approaches to help you decide whether TELUS deserves a spot in your portfolio right now.
Recent Performance Paints a Mixed Picture
TELUS delivered a modest 0.5% return over the past week and 5.2% year to date. However, zoom out further and the picture darkens considerably. The stock fell 2.9% over the past year, dropped 17.4% over three years, and declined 6.9% over five years.
Market watchers have focused intensely on how investors balance TELUS’s income potential against its lackluster share price performance. This tug-of-war between dividend seekers and growth investors has created uncertainty about what the company truly deserves to trade at today.
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DCF Analysis Suggests Massive Upside Potential
A Discounted Cash Flow model projects what TELUS might be worth by forecasting future cash flows and discounting them to present value. This method accounts for both the time value of money and investment risk.
TELUS generated CA$1.48 billion in free cash flow over the latest twelve months. Analysts expect this figure to grow to CA$3.42 billion by 2029, with projections extending to CA$4.73 billion by 2035.
When Simply Wall St discounts these projected cash flows back to today, the analysis produces an intrinsic value of CA$49.86 per share. Compared to the current price of CA$18.92, this suggests TELUS trades at a 62.1% discount to fair value. If this DCF model proves accurate, patient investors could see substantial gains.
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Price-to-Earnings Ratio Tells a Different Story
The P/E ratio offers a simpler way to evaluate what you pay for each dollar of earnings. TELUS currently trades at 24.9x earnings, significantly above the telecom industry average of 16.5x and the peer average of 9.1x.
Higher P/E ratios typically reflect stronger growth expectations or lower perceived risk. In this case, TELUS commands a premium over its competitors despite recent struggles.
Simply Wall St calculates a Fair Ratio of 11.8x for TELUS based on proprietary analysis of growth rates, profit margins, industry dynamics, market capitalization, and company-specific risks. With the current P/E of 24.9x sitting well above this 11.8x benchmark, TELUS appears expensive by this measure.
This creates a paradox: The DCF model suggests deep undervaluation while the P/E comparison indicates overvaluation.
A Better Way to Think About Valuation
Investors can resolve this tension by building their own valuation narrative. A narrative represents your personal story about TELUS, expressed through numbers like your fair value estimate and expectations for future revenue, earnings, and margins.
Two investors can look at identical data and reach completely different conclusions. One might project conservative growth and set a lower fair value, while another might forecast stronger performance and justify a higher price target.
Tools like Simply Wall St allow investors to create these narratives and update them automatically when new earnings reports, company announcements, or news emerge. This approach keeps your valuation framework aligned with the latest information without requiring constant manual updates.
For TELUS specifically, your decision hinges on which story you believe: the DCF narrative of a deeply undervalued cash generator, or the P/E narrative of an overpriced telecom stock trading at unjustified multiples.
See the full valuation breakdown and red flags for TELUS.
Four Critical Questions About TELUS Valuation
Why does TELUS score only 2 out of 6 on valuation checks?
TELUS fails multiple valuation tests despite appearing cheap on some metrics. The low score reflects concerns about whether the current price justifies future performance expectations. Investors should examine each individual valuation component rather than relying solely on this composite score.
What explains the 62% discount in the DCF analysis?
The Discounted Cash Flow model projects TELUS will generate significantly higher free cash flow in coming years, growing from CA$1.48 billion today to CA$4.73 billion by 2035. The market currently prices the stock as if these cash flows will disappoint or face higher risks than the DCF model assumes.
Is a 24.9x P/E ratio too expensive for TELUS?
TELUS trades at nearly double the telecom industry average P/E of 16.5x and almost triple the peer average of 9.1x. This premium appears difficult to justify unless you believe TELUS will deliver substantially better growth or profitability than competitors. The Simply Wall St Fair Ratio of 11.8x suggests the market has overpriced the stock relative to fundamentals.
How should investors reconcile conflicting valuation signals?
Different valuation methods produce different answers because they measure different aspects of value. The DCF focuses on long-term cash generation, while P/E compares current price to current earnings. Smart investors build their own narrative incorporating both growth expectations and risk assessment, then compare that personal fair value to the current market price.
