The future direction of the Telstra Corporation Ltd (ASX: TLS) share price is arguably one of the most hotly debated issues amongst investors at this point in time.
While some believe it can still sink lower, others think that it could climb back above the $4.00 mark again over the next 12 months. I side with the latter of the two and believe it could be a great time to consider an investment in the telco giant again.
At the current share price Telstra's shares are trading at just a fraction over 10x earnings. I believe this is dirt cheap, even considering the negative sentiment regarding its NBN margins, the $3 billion future earnings gap, and its dividend cut.
At a $4.00 share price Telstra would only need to rerate to an undemanding 12x earnings which I feel is fair and still a significant discount to rivals TPG Telecom Ltd (ASX: TPM), Vocus Group Ltd (ASX: VOC), and Amaysim Australia Ltd (ASX: AYS).
If Telstra's shares did find their way back to the $4.00 mark it would mean a share price gain of 15.6%. This extends to almost 22% when you factor in its planned 22 cents per share fully franked dividend.
In my opinion, this provides investors with a compelling risk/reward, making it one of the better blue-chip options on the market at the moment.
Especially if the Internet of Things market does grow as strongly as expected. While I'm not convinced it will be enough to offset the NBN shortfall in full, I do believe that data consumption from connected devices will be a lucrative market for Telstra that will cushion the blow somewhat.
At its AGM in October management estimated the market opportunity growing to be worth up to $5 billion per annum within five years. Considering its best-in-class network I think Telstra is best-placed amongst its peers to capture a sizeable portion of this market.
Overall, although 2017 has been a big disappointment for shareholders, I'm increasingly optimistic that 2018 will be a very different story.
