With the rapid surge in 5G investments and Gen-AI trends, the telecom industry is anticipated to grow at a rapid pace and is well-poised for expansion in the long term.
Considering the industry’s rosy prospects, quality telecom stocks Turkcell Iletisim Hizmetleri A.S. (TKC), Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság (MYTAY), and Ooma, Inc. (OOMA) could be wise additions to your portfolio for substantial returns.
The evolution of Gen-AI is pushing the boundaries and opportunities across all industries, including telecom. Communications Service Providers (CSPs) are evaluating, understanding and experimenting to understand what it takes to implement generative AI, its costs, return on investment, and opportunities.
As the companies attempt to operationalize their generative AI models, more opportunities are emerging, especially in customer care, customer service, and network performance.
In recent years, the increased number of internet users, adoption of 5g networks, and rise in adoption of cloud computing among SMEs contribute in the market growth. The telecom market is expected to grow to $3.11 trillion in 2024, expanding at a CAGR of 4.6%.
Further, the market is projected to expand at a CAGR of 5.8% during the forecast period, resulting in a market volume of $3.90 trillion by 2028, driven by factors like rising smartphone penetration, increasing e-commerce, increasing urbanization and government initiatives.
The rising adoption of 5 G services is significantly fueling the growth of the telecom market. The rollout and management of 5g networks require specialized expertise and resources, requiring telecom service providers to associate with managed service providers to enhance efficiency and customer experience.
Further, the growing demand for managed mobility services is on the rise, prompting the growth of the telecom-managed service market. The telecom-managed service market is expected to grow at a CAGR of 12.5% between 2024 and 2032, leading the value projection to $65.10 billion by 2032.
Given the favorable prospects, investing in quality telecom stocks TKC, MYTAY, and OOMA could be wise for solid returns.
Let’s discuss the fundamentals of these stocks in detail:
Turkcell Iletisim Hizmetleri A.S. (TKC)
Based in Maltepe, Istanbul, TKC offers digital services in Turkey, Ukraine, Belarus, and internationally. The company operates through Turkcell Turkey; Turkcell International; and Techfin segments. It offers work contact services such as mobile communications, fixed business internet and business phone, digital business services comprising uninterrupted access.
TKC’s trailing-12-month EBIT and net income margins of 26.08% and 21.56% are 215.3% and 464% higher than the respective industry averages of 8.27% and 3.82%. Similarly, its trailing-12-month ROCE of 52.48% is considerably higher than the industry average of 4.20%.
In terms of forward non-GAAP P/E, TKC is trading at 7.08x, 53.3% lower than the industry average of 15.15x. Further, the stock’s forward EV/EBITDA multiple of 4.52 is 47% lower than the industry average of 8.52. Likewise, its forward Price/Cash Flow of 4.43x is 50.7% lower than the industry average of 8.99x.
For the third quarter that ended September 30, 2023, TKC’s revenue increased 77.3% year-over-year to TRY25.99 billion ($839.02 million), and its gross profit increased 115.3% from the year-ago value to TRY10.36 billion ($334.42 million). The company’s EBITDA grew 88.9% from the prior year’s quarter to TRY11.31 billion ($365.19 million).
Furthermore, its net income came in at TRY5.48 billion ($176.83 million), up 128.7% from the prior year’s quarter. As of September 30, 2023, the company’s total assets were TRY149.17 billion ($4.81 billion), compared to TRY90.65 billion ($2.93 billion) as of September 30, 2022.
Analysts expect TKC’s revenue for the fourth quarter (ended December 2023) to increase 10.7% year-over-year to $937.32 million. The company’s revenue and EPS are further expected to grow 58.1% and 78.3% year-over-year to $4.76 billion and $1.18 for the fiscal year ending December 2024.
The stock has gained 2.7% over the past six months and 22.4% over the past year to close the last trading session at $5.29.
TKC’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Sentiment and a B for Value, Quality, Stability and Growth. Within the A-rated Telecom - Foreign industry, the stock has topped among 44 stocks.
Click here to access additional ratings of TKC.
Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság (MYTAY)
Headquartered in Budapest, Hungary, MYTAY offers fixed-line and mobile telecommunication services for residential and small business customers internationally. It operates through MT-Hungary; and North Macedonia segments. The company provides TV distribution, mobile telecommunication services, internet and voice services, and sells telecommunications network.
On September 15, MYTAY and the Government of Hungary signed a Memorandum of Understanding (MoU) under which MYTAY affirmed to promote the development of long-term sustainable fixed and mobile infrastructure and the rollout of services, participating in the EU’s Digital Decade program, the achievement of the 2030 objectives, in line with the National Digitalization Strategy.
The signed MoU reaffirms the long-term cooperation between the organizations for digital transformation across Hungary.
In terms of forward EV/EBIT, MYTAY is trading at 8.48x, 46.3% lower than the industry average of 15.79x. The stock’s forward Price/Sales multiple of 0.88 is 30.8% lower than the industry average of 1.27. Moreover, its forward EV/EBITDA of 4.40x is 48.8% lower than the industry average of 8.61x.
During the third quarter that ended September 30, 2023, MYTAY’s revenue increased 13.3% year-over-year to HUF216.23 billion ($602.91 million). Its operating profit grew 46% from the year-ago value to HUF45.71 billion ($127.47 million). Its adjusted profit attributable to owners of the parent came in at HUF30.04 billion ($83.76 million), up 49.4% from the previous year’s quarter.
In addition, the company’s gross profit increased 19% year-over-year to HUF131.25 billion ($365.98 million). MYTAY’s EBITDA of HUF80.45 billion ($224.33 million) indicates an increase of 23.4% from the year-ago value. Its free cash flow for the nine months of 2023 totaled HUF48.31 billion ($134.71 million).
Analysts expect MYTAY’s revenue to grow 11.5% year-over-year to $618.05 million for the fourth quarter (ended December 2023). Similarly, the company’s revenue for the fiscal year 2023 is expected to increase 12.8% year-over-year to $2.34 billion. Also, the company surpassed the consensus revenue estimates in three of the trailing four quarters.
Over the past six months, MYTAY’s stock has surged 67.5% and 117.4% over the past year to close the last trading session at $10.89.
MYTAY’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall grade of A, equating to a Strong Buy in our proprietary rating system.
MYTAY has a B grade for Value, Sentiment, Stability, Quality and Growth. It is ranked #2 among the 44 stocks within the A-rated Telecom - Foreign industry.
To access all the ratings of MYTAY, click here.
Ooma, Inc. (OOMA)
OOMA provides communications services and related technologies for businesses and consumers in the United States and Canada. The company's products and services include Ooma Office, Ooma Connect, Ooma Managed Wi-Fi, and Ooma Enterprise. It also provides Ooma AirDial, Ooma Basic, and Ooma Premier.
On February 13, OOMA announced offering easy and affordable paths to replacing POTS, or Plain Old Telephone Service to both consumers and businesses. This was after AT&T and other legacy carriers prepare to shut down their landline infrastructure.
With customizable, advanced features, OOMA is offering efficient solution to the customers and businesses in the form of OOMA Telo and OOMA premier plan.
On December 7, OOMA announced the integration of its Ooma Office business phone service with Clio, the global leader in legal technology. This strategic integration aimed to significantly improve the legal client experience during phone interactions by providing personal and efficient interactions.
The integration aimed at enhancing communication and boost productivity within law firms.
In terms of forward EV/Sales, OOMA is trading at 1.18x, 37.3% lower than the industry average of 1.87x. The stock’s forward Price/Sales multiple of 1.11 is 12.2% lower than the industry average of 1.26.
During the third quarter that ended October 31, 2023, OOMA’s total revenues grew 5.6% year-over-year to $59.86 million. Its non-GAAP gross profit increased 2.9% from the year-ago value to $37.37 million. The company’s non-GAAP net income amounted to $4.02 million, and $0.15 per share, up 16.1% and 7.1% from the prior year’s quarter.
In addition, the company’s adjusted EBITDA increased 10.8% year-over-year to $4.99 million. Its total assets stood at $162.91 million as of October 31, 2023, versus $131 million as of January 31, 2023.
For the fourth quarter of fiscal 2024, the company expects revenue between $61.20 million and $61.8 million. OOMA’s non-GAAP net income is expected to range from $3.10 million to $3.40 million. For the full fiscal year 2024, the company’s total revenue is expected in the range of $236.30 million to $236.90 million.
Street expects OOMA’s revenue to increase by 9.4% year-over-year to $236.51 million for the fiscal year ended January 2024. The company’s EPS for the ongoing year is expected to grow 7.1% year-over-year to $0.58. Furthermore, OOMA topped the consensus revenue estimates in all four trailing quarters.
Shares of OOMA have declined 4.1% over the past month to close the last trading session at $10.14.
OOMA’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
OOMA has a B grade for Value, Stability, Growth and Sentiment. It is ranked first among the 17 stocks in the Telecom - Domestic industry.
In addition to the POWR Ratings we’ve stated above, we also have OOMA ratings for Momentum and Quality. Get all OOMA ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
TKC shares were trading at $5.28 per share on Thursday afternoon, down $0.01 (-0.19%). Year-to-date, TKC has gained 9.77%, versus a 6.63% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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