Now Is Probably Not The Time To Be Buying Telecom Stocks
Telecom valuations seem to be either in the penthouse (as they are now and as they were in 2005-2007) or in the outhouse (as they were from 2001-2003 and 2008-2010). The charts below show the percent of Telecom stocks that are trading within 25% of their 3-year, 5-year and 7-year max valuation. We look at P/E, P/CF, P/S and P/B on each chart.
The 3-year chart shows the most extreme valuations with 100% of stocks trading within 25% of their 3-year max valuation based on P/S. This is the highest level since November 2006. Looking at the other three valuation metrics, we see they are at even more extended historical valuation levels. 95% of stocks are trading within 25% of their 3-year max P/B level. This is the highest level since February 2002. 88% of stocks are trading within 25% of their 3-year max P/CF level which is the highest since April 2002. And finally, 71% of stocks are trading within their 3-year max P/E level which is the highest since March 2002. Anyone that remembers the TMT bust may shutter looking at these valuation levels.
The absolute level are lower looking at it from a 5-year or 7-year perspective. The trends, however, remain in place. Regardless of how you slice it Telecom valuations look stretched.
(c) GaveKal Capital