Until October 2016, TPG Telecom was the fast growing telco with almost 20% EPS growth whilst trading on a low 2% yield.
Then came the earnings update and the company suggested future EPS growth will be more like 5%. If Telstra is growing earnings at 3 – 5% and paying a 6% yield, why would an investor buy TPG on a substantially different yield or valuation?
You're not a member! Trial today
You just wouldn’t. As such, we’ve watched TPG sell-off from $12.50 to $6.20 and the stock is now back on a 4.5% yield. TPG will likely find buying support now and the market is hoping EPS growth will creep higher into the range of 5 – 10% to support the yield differential with Telstra.
We’ve been buyers of Telstra at sub $5.00 and we’re looking for the stock to trade $5.50 before evaluating a covered call option strategy.
