The Motley Fool

Why I’d buy Talktalk Telecom Group plc after crashing 15% today

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

One of the biggest problems with turnaround stocks is that they usually take time to recover. And in the period of recovery, there is uncertainty and sometimes disappointment which can lead to a falling share price. However, in the long run such stocks can deliver high share price returns.

With that in mind, the fall in the Talktalk (LSE: TALK) share price on Wednesday of 15% may seem like a disaster for its investors. After all, it is a sizeable loss in a short space of time. However, in the long run the company appears to have recovery potential. With its shares now cheaper than they were, it could be an even more enticing buying opportunity.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Growth potential

In recent months, Talktalk has prioritised growth. The company reset its strategy in May and since then its focus has been on adding new customers and simplifying the business. In this aim, its first half of the year seems to have been successful. It was able to add 46,000 new customers during the period versus a fall in the same period of last year of 29,000.

Its Retail and Wholesale divisions both saw double-digit growth, while the company continues to make progress on churn rates. They are down to 1.3% from 1.5% in the second half of last year. This shows that customer satisfaction and the company’s competitiveness may be improving versus sector peers. The business was also able to post strong growth in fibre, where customer numbers increased by 161,000, and in TV, where customer numbers increased by 19,000. Against a competitive market backdrop, the growth prospects for the business seem to be bright.

Financial outlook

Of course, Talktalk’s focus on growth has meant that its financial performance has disappointed. It recorded a loss in the first half of the year of £75m on a pre-tax basis. This compares to a pre-tax profit of £30m in the first half of the prior year. In addition, dividends have fallen to 2.5p per share from 5.29p per share over the same period. This is disappointing, but unsurprising given the level of investment which may be required to turn the company’s performance around.

In 2018, earnings are due to rise by 26%. This could help to improve investor sentiment over the medium term – especially since Talktalk trades on a price-to-earnings growth (PEG) ratio of just 0.6 at the present time. This indicates that it may offer a wide margin of safety, and that share price growth prospects may be high.

As such, while its investment performance may be volatile and its financial outlook may be uncertain due to the changes it is making to its business, the stock seems to be a sound turnaround opportunity. It could offer excellent value for money at a time when a number of mid and large-cap shares are starting to look relatively expensive.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Peter Stephens owns shares in Talktalk. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.