T-Mobile a Surprise High-Flyer in Tech Stocks

T-Mobile USA (TMUS) has jumped more than 26% this year and is trading just below the July 2021 all-time high.  It is among the Nasdaq 100 Index’s ($IUXX) (QQQ) best-performing stocks this year, only below the 94% gain in Constellation Energy and the 34% jump in Vertex Pharmaceuticals. 

Fast-growing technology companies with high valuations have been hammered this year by higher interest rates, while a slowing economy has undercut advertising-dependent internet businesses.  However, T-Mobile has unexpectedly been surpassing estimates for new subscribers this year.  Also, T-Mobile has made inroads into building out its 5G network since acquiring Sprint in 2020.

T-Mobile has outperformed rivals AT&T Inc (T) and Verizon Communications (VZ) by aggressively pricing phone plans at lower costs, attracting customers whose spending plans are being squeezed by rising inflation.  AT&T stock is down -1.6% this year, and Verizon Communications is down -13%. CFRA Research, which has a strong buy on T-Mobile, said, “cellular connectivity is essential in modern society and is one of the last things to be cut by consumers who may drop to lower prices plans and hold off on purchasing new devices, but they won’t cancel service.”

Raymond James, who also has a strong buy recommendation on T-Mobile, said the company is “benefitting from the Sprint merger, both on the revenue and cost side.”  Raymond James also said, "T-Mobile has gained a 5G network advantage and is no longer just a value leader but can compete and win on network quality as well.”

Bahnsen Group said that while T-Mobile has seen “great” business growth this year, the stock is still “extremely expensive.”  Trading at 30 times forward earnings, T-Mobile is valued well above AT&T’s 7.3 and Verizon Communication’s 8.6 times forward earnings.  Its rivals also pay dividends, unlike T-Mobile.  Bahnsen Group said with T-Mobile’s high valuation, the stock is a “speculative play more than a stable value play.” 

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