Will the Telstra share price ever make it back above $6?

The Telstra Group Ltd (ASX: TLS) share price once traded at more than $6 apiece, as the chart below shows.

But you'll notice that we have to go back to 2015 to see that level — nearly a decade ago! Long-term shareholders haven't seen their shares above $6 in two US presidential terms.

I can understand why the Telstra share price traded as high as it did – back then, the ASX telco share was making much bigger profits on its broadband customers before the country moved onto the NBN. Telstra used to own the infrastructure and generate earnings from it.

But, now Telstra is competing for NBN customers just like every other reseller, though the company does have some scale advantages.

The question is – will Telstra be able to generate enough profit for the market to want to pay $6 for the stock?

Profit projections

The broker UBS is currently projecting that the ASX telco share could make $2.15 billion of net profit and 19 cents of earnings per share (EPS) in the 2025 financial year.

UBS is "positive" about the company's ability to continue enacting price rises in the mobile division over the medium term. The broker projects that average revenue per user (ARPU) could grow by 2.1% in FY25.

Beyond FY25, the broker forecasts annual price rises of 2.5% to 3% as "industry dynamics remain rational".

If we look ahead to FY29 – four years away – UBS is forecasting that Telstra could make $3.24 billion of net profit and 28 cents of EPS.

Current Telstra share price valuation

Telstra shares are currently trading at 21x FY25's estimated earnings.

If the company traded at 21x FY29's estimated earnings, that would translate into a share price of $5.88.

I think there's a very good chance that the Telstra share price will reach $6 by the time the FY30 result is reported. In other words, I think it could grow by 50% by August 2030.

The dividend return would be an important bonus for shareholders. I think it's likely to happen if Telstra continues adding new mobile subscribers and increasing mobile prices. Or, it could happen sooner if Telstra's price/earnings (P/E) ratio increased.

I'm also excited by the potential of the business to grow its home broadband margins with the growth of its wireless broadband offering — that's home broadband that uses the mobile network. This could become increasingly popular as the 5G network and wireless offerings improve.

In my view, Telstra shares are among the most appealing ASX blue chip shares right now.

The post Will the Telstra share price ever make it back above $6? appeared first on The Motley Fool Australia.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2024