The continuing development of new digital services and applications is providing new opportunities for the telecom market. In addition, President Biden’s Bipartisan Infrastructure Law, which aims to provide a historic investment in broadband infrastructure deployment of $65 billion, will have a significant positive impact on the sector.

Moreover, the Affordable Connectivity Program (ACP) provides a discount of up to $30 per month toward Internet service for eligible households to boost internet adoption. The global telecom services market is expected to grow at a CAGR of 6% by 2026.

Amid the favorable industry trends, investors’ interest in telecom stocks is evident from the SPDR S&P Telecom ETF’s (XTL) 3.7% gains over the past three months and 5.2% gains over the past six months.

Given the backdrop, fundamentally sound telecom stocks, Verizon Communications Inc. (VZ), Ooma, Inc. (OOMA), and Spok Holdings, Inc. (SPOK), might be ideal buys now. These stocks are currently trading under $45.

Verizon Communications Inc. (VZ)

VZ and its subsidiaries offer communications, technology, information, and entertainment products and services worldwide to consumers, businesses, and governmental entities. Its segments are Consumer and Business. 

On November 15, 2022, VZ launched an advanced technology in its stores ahead of the holidays to give its customers an all-new exciting experience in tech shopping.

In terms of forward EV/EBITDA, VZ is currently trading at 7.23x, 9.7% lower than the industry average of 8x. Its forward Price/Book of 1.86x is lower than the industry average of 1.89x. 

VZ’s trailing-12-month gross profit margin of 56.97% is 13.23% higher than the 50.32% industry average. Its trailing-12-month net income margin of 14.22% is 215.53% higher than the 4.51% industry average.

VZ’s operating revenues came in at $34.24 billion for the third quarter that ended September 30, 2022, up 4% year-over-year. Moreover, its wireless equipment revenues came in at $6.58 billion, up 22.8% year-over-year. Also, its total assets came in at $375.09 billion for the period ended September 30, 2022, compared to $366.60 billion for the period ended December 31, 2021.

VZ’s revenue is expected to increase marginally year-over-year to $138.72 billion in 2023. Its EPS is expected to increase by 2.2% per annum for the next five years. It surpassed EPS estimates in three out of four trailing quarters. Over the past month, the stock has gained 5.08% to close the last trading session at $40.12.

VZ’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

VZ has a B grade for Growth and Stability. In the Telecom – Domestic industry, it is ranked #3 out of 19 stocks. Click here for the additional POWR Ratings for Momentum, Sentiment, Value, and Quality for VZ.

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 Office Pro, Ooma Connect, Ooma Enterprise, Ooma AirDial, Ooma Premier, and Ooma Telo Air.

In terms of forward EV/Sales, OOMA is currently trading at 1.52x, 17.8% lower than the industry average of 1.85x.

OOMA’s trailing-12-month gross profit margin of 63.05% is 25.3% higher than the 50.32% industry average. Its trailing-12-month Asset turnover ratio of 1.81% is 277.8% higher than the 0.48% industry average.

OOMA’s total revenue increased 15.3% year-over-year to $56.78 million for the third quarter that ended October 30, 2022. Its subscription and services revenues came in at $51.75 million, up 15.9% year-over-year. Moreover, its gross profit came in at $35.92 million, up 18.8% year-over-year.

Analysts expect OOMA’s revenue to increase 12.4% year-over-year to $216.09 million in 2023. Its EPS is estimated to grow 3.9% year-over-year to $0.53 in 2023. It has surpassed EPS estimates in all four trailing quarters. The stock has gained 14.4% over the past six months to close the last trading session at $13.69.

OOMA’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. It has an A grade for Growth and a B for Value, Stability, and Sentiment. It is ranked first in the same industry.

Beyond what is stated above, we’ve also rated OOMA for Momentum and Quality. Get all OOMA ratings here.

Spok Holdings, Inc. (SPOK)

SPOK provides healthcare communication solutions worldwide. It delivers clinical information to care teams to enhance patient outcomes. The company offers subscriptions to one-way or two-way messaging services and ancillary services and sells devices to resellers.

In terms of forward EV/Sales, SPOK is currently trading at 1.11x, 40.2% lower than the industry average of 1.85x. Its trailing-12-month Price/Book of 1.09x is lower than the industry average of 1.63x. 

SPOK’s trailing-12-month gross profit margin of 66.14% is 31.5% higher than the 50.32% industry average. Its trailing-12-month Asset turnover ratio of 0.55% is 14.5% higher than the 0.48% industry average.

SPOK’s operating income came in at $3.54 million for the third quarter that ended September 30, 2022, compared to a loss of $3.56 million in the year-ago period. Its net profit came in at $2.92 million compared to a net loss of $2.49 million for the same period. Also, its EPS came in at $0.15 compared to a loss per share of $0.13 for the previous year.

Street expects SPOK’s revenue to come in at $32.48 million for the yet-to-be-reported quarter ending December 2022. SPOK’s EPS is estimated to grow 64.7% year-over-year to $0.84 in 2023. Over the past six months, the stock has gained 35.6% to close the last trading session at $8.49.

It’s no surprise that SPOK has an overall A rating which equates to a Strong Buy in our POWR Ratings system.

It has an A grade for Growth and Sentiment and a B for Quality. The stock is ranked #2 in the same industry. We’ve also rated SPOK for Stability, Momentum, and Value. Get all SPOK ratings here.

VZ shares were trading at $41.28 per share on Wednesday morning, up $1.16 (+2.89%). Year-to-date, VZ has gained 4.77%, versus a 0.77% 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. More...

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