Bellevue, Washington-based mobile communications services provider T-Mobile US, Inc. (TMUS) added 1.3 million net customers in the third quarter of 2021, with the total customer count increasing to a record-high of 106.9 million. The company invests significantly to expand its 5G network and commits to building the world's best broad and deep nationwide 5G network.

Although the company reported expanding its customer base, its total revenues declined sequentially. On the bottom line, its net income and EPS declined nearly 30% quarter-over-quarter. Its bottom line also declined year-over-year due to the merger-related costs. The company expects these costs to be between $2.80 billion and $3 billion before taxes for the full year, impacting its net income, net cash provided from operating activities, and free cash flow growth.

TMUS shares have slumped 14% over the past year and 19.9% over the past six months. The stock is trading below its 50-day average, indicating a downtrend.

The company has been dealing with several cyberattacks and data breaches, raising questions against its ability to ensure customers' personal identifying information safety and security. The data breach last August affected nearly 50 million of its customers. Also, TMUS suffered another cyber attack this month, reportedly a less sensitive one. In addition, TMUS is under investigation concerning the data breaches and the company's take on it. Also, last year, TMUS was fined $92 million by the Federal Communications Commission (FCC) for its failure to protect the customer location information and its "fundamentally weak" privacy safeguards. These lawsuits and the frequent cyberattacks make investors anxious, justifying its negative returns over the year.

Here's what could shape TMUS's performance in the near term:

Lawsuit

Bragar Eagel & Squire, P.C., a nationally recognized shareholder rights law firm, is investigating potential claims against TMUS on behalf of long-term stockholders concerning whether the company's board of directors has breached their fiduciary duties to the company. The complaints allege that the defendants were aware that the company did not have an effective system of internal controls to ensure the safety and security of customers' personal identifying information in the face of the repeated cybersecurity threats faced. The cyberattacks caused substantial damage to the company and its stockholders.

Lofty Valuation

In terms of forward EV/Sales, TMUS is currently trading at 3.11x, 24.1% higher than the industry average of 2.51x. Also, its forward P/E ratio of 47.38 is 163.8% higher than the industry average of 17.96, while its trailing-12-months PEG of 18.75x is significantly higher than the industry average of 0.41x.

Poor Profitability

TMUS' net income margin of 4.21% is 35.6% lower than the industry average of 6.53%. Moreover, TMUS's ROE, ROA, and ROTC of 5.04%, 1.66%, and 3.67% are 48.8%, 44.7%, and 19.8% lower than the respective industry averages.

Weak Bottom Line

TMUS's total revenues increased 1.8% year-over-year to $19.62 billion in the fiscal third quarter ended September 30. However, net income declined 44.9% from the year-ago value to $691 million, while its EPS decreased 45% year-over-year to $0.55. 

POWR Ratings Reflect This Bleak Prospects

TMUS has an overall rating of D, translating to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of D for Quality, consistent with its lower-than-industry profit margins.

TMUS also has a D grade for Value. Its stretched valuations justify this grade.

Of the 19 stocks in the D-rated Telecom - Domestic industry, TMUS is ranked #17.

Beyond what I have stated above, you can also view TMUS' grades for Sentiment, Growth, Momentum, and Stability here.

View the top-rated stocks in the Telecom – Domestic industry here.

Bottom Line

The company's bottom line declined year-over-year in its most recent quarter, while its revenues increased, registering low single-digit growth. Analysts expect its EPS to decline 63.3% in the to-be-reported quarter and 12.5% for the full year 2021. Moreover, considering its stretched valuation and low-profit margins, TMUS is best avoided now.

How Does T-Mobile US, Inc. (TMUS) Stack Up Against its Peers?

While TMUS has an overall POWR Rating of D, one might want to consider investing in the following Telecom – Domestic stocks with a B (Buy) rating: InterDigital Inc. (IDCC), Ooma, Inc. (OOMA), and Cogent Communications Holdings, Inc. (CCOI).

TMUS shares were trading at $114.41 per share on Monday afternoon, down $1.57 (-1.35%). Year-to-date, TMUS has declined -15.16%, versus a 28.79% rise in the benchmark S&P 500 index during the same period.

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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