Investment Thesis?Hi, I am a value investor and have started sniffing around the telecoms as they seem to be heading in the right direction ... i.e., toward my buy price.
But taking a quick peek under the hood I don't like what I see. Telus trades at twice book, which is rather rich for my tastes but might be justified if the company boasts extraordinary earning power.
Alas, looking at the previous year results and next year earnings forecast, this does not seem to be the case. ROE is mired in the single digits. ROE should be in the 12% - 15% range to justify such a rich multiple of book value.
And to make matters worse, Telus is paying out more in dividends than it earns. This means the only way they can grow or even maintain their assets is by issuing more stock. I really hate companies that do this, as it is inefficient from a tax perspective and also tends to suppress the share price as there is always the dilution overhang haunting the stock.
If I am wrong or missing something important, pleas set me straight. I would not mind having some telecom exposure.