The telecom industry is expected to expand in response to increased demand for high-speed internet, 5G technology, remote work, and virtual communication.
Given the industry’s bright prospects, fundamentally strong telecom stocks PLDT Inc. (PHI), Ooma, Inc. (OOMA), and uCloudlink Group Inc. (UCL) could be solid additions to your portfolio.
Rising spending on 5G infrastructure deployment, a growing number of mobile users, and soaring demand for high-speed data connectivity are all expected to fuel the telecom market’s growth as next-generation technologies are adopted more extensively. The 5G infrastructure market is predicted to reach $9.87 billion in 2024 and $69.01 billion by 2029, growing at a CAGR of 47.5%.
The global telecom market’s growth will be driven by the increasing demand for high-speed internet connectivity, advancements in 5G technology, and the rise of IoT devices. The global telecommunications market is expected to reach $3.10 trillion by 2030, growing at a CAGR of 6.2%.
Gen AI advancements are pushing the boundaries and creating opportunities in numerous sectors, including telecom. Gen AI will help communication service providers (CSPs) provide better customer service, improved troubleshooting assistance, better predictive maintenance, and reduced costs.
AI in the telecommunications market is expected to reach $15.78 billion by 2032, growing at a CAGR of 27.9%. Investors’ interest in telecom stocks is evident from the SPDR S&P Telecom ETF’s (XTL) 2.8% returns over the past six months.
Considering these conducive trends, let’s assess the fundamentals of the three telecom industry picks.
PLDT Inc. (PHI)
Headquartered in Makati City, the Philippines, PHI provides telecommunications and digital services in the Philippines. The company operates through three segments: Wireless, Fixed Line, and others.
PHI’s trailing-12-month gross profit margin of 73.56% is 48.8% higher than the 49.44% industry average. Its 12.62% trailing-12-month net income margin is 360.8% higher than the 2.74% industry average. Also, its 24.98% trailing-12-month Return on Common Equity is 681.4% higher than the 3.20% industry average.
For the fiscal year that ended December 31, 2023, PHI’s revenues from contracts with customers increased 3.2% year-over-year to ₱210.95 billion ($12.72 billion). The company’s net income increased 149.9% year-over-year to ₱26.82 billion ($1.62 million). Also, EPS attributable to common equity holders of PLDT increased 154.7% year-over-year to ₱122.91.
Street expects PHI's EPS and revenue for fiscal 2024 to increase 14.6% and 2.5% year-over-year to $2.84 and $3.88 billion, respectively. Over the past six months, the stock has gained 17% to close the last trading session at $24.01.
PHI's POWR Ratings reflect this promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
PHI has a B grade for Growth, Stability, and Quality. Within the A-rated Telecom - Foreign industry, it is ranked #7 out of 44 stocks. To see PHI's additional ratings for Value, Momentum, and Sentiment, 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 offers Ooma AirDial, Ooma Basic, and Ooma Premier.
OOMA’s trailing-12-month gross profit margin of 62.19% is 25.8% higher than the industry average of 49.44%. Its trailing-12-month asset turnover ratio of 1.63x is 242.3% higher than the industry average of 0.48x.
During the fourth quarter that ended January 31, 2024, OOMA’s total revenues grew 9.2% year-over-year to $61.68 million. Its non-GAAP gross profit increased 6.7% from the year-ago value to $38.79 million. The company’s non-GAAP net income amounted to $3.53 million and $0.13 per share, respectively.
In addition, the company’s adjusted EBITDA increased 2.9% year-over-year to $5.20 million. Its total assets stood at $159.25 million as of January 31, 2024, versus $131 million as of January 31, 2023.
For the quarter ending April 30, 2024, OOMA’s revenue is expected to increase 8.8% year-over-year to $61.84 million. Its EPS for fiscal 2026 is expected to increase 15.9% year-over-year to $0.62. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past month, the stock has declined 17.5% to close the last trading session at $8.28.
OOMA’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #2 out of 17 stocks in the Telecom - Domestic industry. It has an A grade for Value and a B for Growth, Stability, and Sentiment. Click here to see OOMA's ratings for Momentum and Quality.
uCloudlink Group Inc. (UCL)
Headquartered in Tsim Sha Tsui, Hong Kong, UCL operates as a mobile data traffic sharing marketplace in the telecommunications industry.
UCL’s trailing-12-month net income margin of 3.28% is 20% higher than the industry average of 2.74%. Its trailing-12-month Return on Total Capital of 19.57% is 494.9% higher than the industry average of 3.29%. Its 4.97% trailing-12-month Return on Total Assets is 301.2% higher than the 1.24% industry average.
For the fourth quarter that ended December 31, 2023, UCL reported revenues of $21.73 million, up 10.8% year-over-year. The company’s gross profit increased 12.2% year-over-year to $11.29 million. Its adjusted net income stood at $1.08 million.
In addition, its total current assets stood at $49.02 million as of December 31, 2023, versus $41.35 million as of December 31, 2022.
Analysts expect UCL’s EPS for the quarter ending September 30, 2024, to increase 586.3% year-over-year to $0.07. Its revenue for the quarter ending June 30, 2024, is expected to increase 14.1% year-over-year to $25.08 million. It surpassed the consensus EPS estimates in three of the trailing four quarters. Shares of UCL have gained 1.4% over the past month to close the last trading session at $1.50.
It’s no surprise that UCL has an overall B rating, equating to a Buy in our POWR Ratings system.
It has an A grade for Growth and Sentiment and a B for Quality. It is ranked #6 in the Telecom - Foreign industry. Beyond what is stated above, we’ve also rated UCL for Value, Momentum and Stability. Get all UCL 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.
PHI shares were trading at $23.93 per share on Wednesday morning, down $0.08 (-0.33%). Year-to-date, PHI has gained 4.63%, versus a 9.85% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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