Telus stock has been in a freefall this year and is now hovering at its lowest level since 2016, making it one of the top laggards in the TSX Index. It has dropped in the last four consecutive weeks and is down by 54% from its all-time hixgh. So, with the stock being highly undervalued, is it a good buy?
Telus stock has come under pressure as growth slows
Telus Corporation is one of the top three telecommunication companies in Canada alongside Bell and Rogers. Its core services are in the wireless and wireline, Telus Health, and Telus Digital.
Telus has faced some challenges in the past few months, contributing to its slow revenue growth. Its last earnings report showed that its operating revenue dropped by 2% in the June quarter to C$4.92 billion, with its operating expenses soaring by 32% to C$6.5 billion.
As a result, the company moved from a net loss of C$235 million in the June quarter of last year to a whopping C$1.83 billion. Its closely watched EBITDA also declined by 5% to C$1.58 billion.
With its challenges continuing, the management decided to reset the business. The most important aspect of this turnaround was to slash its dividend, a move that it hopes will help it preserve cash and reinvest in its growth. In line with this, it eliminated the DRIP discount program that enables investors who buy shares using the dividend to do so at a discount.
The dividend cut will also help it to improve its balance sheet by reducing the net debt to adjusted EBITDA to 3.0 times or lower.
In addition to this, the company decided to focus on capital deployments to areas it expects to generate substantial returns. As part of this strategy, it plans to deploy technology to improve its operations and reduce redundancy.
Telus is also investing in its wireless and PureFibre networks, a move it hopes will help it give an edge in the country. Also, it is seeking to sell non-core assets, especially in its health business.
These events have pushed analysts to slash their outlook for Telus, with Barclays cutting its target from $12 to $11.
Telus stock technical analysis
The weekly chart shows that Telus stock has been in a freefall, with buyers remaining in the sidelines. This crash accelerated when the stock dropped below the key support level of $16.7, its lowest level in September 2023, June 2024, and December 2024. Moving below that level signaled that bears have prevailed.
On the positive side, there are signs that Telus has become highly oversold, with the Relative Strength Index (RSI) falling to 17.40, its lowest level on record. Highly oversold conditions normally attracts dip buyers.
This view is reinforced by the fact that it remains much lower than the 50-week Exponential Moving Average (EMA). As a result, it may experience mean reversion, where an asset in a freefall bounces back.