We believe that T-Mobile stock (NASDAQ: TMUS), included in the S&P500, is a better pick than Procter & Gamble stock (NYSE: PG), also in the S&P500, given its better prospects. Although these companies are from different sectors, we compare them because they have a similar revenue base of $79 billion to $81 billion and a similar P/EBIT ratio of about 21x. The decision to invest often comes down to finding the best stocks within the parameters of certain characteristics that suit an investment style. The size of profits can matter, as larger profits can imply greater market power.
Since these stocks are from different sectors, comparing P/S against one another may not be helpful. We compare their current multiples with the historical ones in the sections below to better understand their valuations. Looking at stock returns, both PG and TMUS, with 0% to 1% returns this year, have underperformed the broader S&P500 index, up 16%. There is more to the comparison, and in the sections below, we discuss why we believe T-Mobile will offer higher returns than P&G in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in an interactive dashboard analysis of Procter & Gamble vs. T-Mobile US: Which Stock Is A Better Bet? Parts of the analysis are summarized below.
1. T-Mobile’s Revenue Growth Is Better
- T-Mobile’s 22.8% average annual revenue growth rate in the last three years is much better than 5.8% for P&G.
- If we look at the last twelve months, P%G’s 1.7% revenue growth fares better than -1.7% for T-Mobile.
- P&G’s largest segment is Fabric & Home Care, contributing around 35% of the company’s revenues. It has also seen a steady rise in sales over recent years. In 2022, the company reported a 5% rise in total sales, driven by a 2% growth in unit volume.
- However, in its latest quarter, P&G reported a 1% decline in reported sales, primarily due to forex headwinds. Organic sales grew 5%, driven by better price realization, but shipment volume declined.
- The strong revenue growth for T-Mobile can be attributed to the Sprint merger in 2020. The momentum T-Mobile is witnessing is also driven by its industry-leading 5G network, which is helping it win over more customers. T-Mobile has also made steady inroads into the broadband market with its fixed wireless broadband offering, adding an industry-leading two million subscribers last year.
- Our Procter & Gamble Revenue Comparison and T-Mobile Revenue Comparison dashboards provide more insight into the companies’ sales.
- Looking forward, T-Mobile’s revenue is expected to grow faster than P&G’s over the next three years. The table below summarizes the revenue expectations for both companies and points to a CAGR of 2% for P&G and a 5% CAGR for T-Mobile, based on Trefis Machine Learning analysis.
- Note that we have different methodologies for companies negatively impacted by Covid and those not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to predict recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.
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2. P&G Is More Profitable
- P&G’s operating margin has risen from 8% in 2019 to 22% in 2022, while T-Mobile’s operating margin declined from 10.2% to 8.2% over this period.
- Also, looking at the last twelve-month period, P&G’s operating margin of 21.6% fares better than 10.3% for T-Mobile.
- Our Procter & Gamble Operating Income Comparison and T-Mobile Operating Income Comparison dashboards have more details.
- Looking forward, the operating margin of both companies is expected to improve in the near term. P&G should benefit from a better pricing environment, likely passing on increased raw material costs to the customers. At the same time, T-Mobile’s operating margin expansion will be driven by the decommissioning of the Sprint network last year and potentially due to lower promotional expenses driven by the company’s record low churn levels. For perspective, T-Mobile’s postpaid churn stood at just 0.88% in 2022 versus 0.98% in 2021.
- T-Mobile’s 21% free cash flow margin is better than 19% for P&G.
- Looking at financial risk, P&G fares better with its 10% debt as a percentage of equity significantly lower than 44% for T-Mobile and its 6% cash as a percentage of assets higher than 2% for the latter, implying that P&G has a better debt position and more cash cushion.
3. The Net of It All
- We see that P&G is more profitable and has a better debt position and cash cushion. To some extent, this also explains its higher P/S multiple of 4.4x sales compared to 2.1x for T-Mobile.
- Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe T-Mobile is the better choice of the two.
- If we compare the current valuation multiples to the historical averages, T-Mobile fares better, with its stock currently trading at 2.1x revenues vs. the last five-year average of 2.3x. In contrast, P&G stock trades at 4.4x revenues vs. its last five-year average of 4.3x.
- Our Procter & Gamble Valuation Ratios Comparison and T-Mobile Valuation Ratios Comparison offers more details.
- The table below summarizes our revenue and return expectations for both companies over the next three years and points to an expected return of 0% for P&G over this period vs. an 18% expected return for T-Mobile, based on Trefis Machine Learning analysis – Procter & Gamble vs. T-Mobile – which also provides more details on how we arrive at these numbers.
While TMUS may outperform PG in the next three years, it is helpful to see how Procter & Gamble’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Given higher inflation and the Fed raising interest rates, PG stock has risen just 1% this year. Can it drop from here? See how low Procter & Gamble stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stores in previous market crashes.
What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.
|S&P 500 Return||0%||16%||99%|
|Trefis Multi-Strategy Portfolio||1%||20%||275%|
 Month-to-date and year-to-date as of 7/5/2023
 Cumulative total returns since the end of 2016