3 reasons why the Telstra share price could still be a buy

In the last four months, the Telstra Group Ltd (ASX: TLS) share price has risen by around 20%. I think the business still has potential to rise from here.

Impressively, the business has delivered this capital growth at a time when there has been a lot of volatility in share markets locally and globally amid US tariff uncertainty.

I'm not expecting the telco to rise another 20% in another four months, but I think the outlook is very promising for further returns in the coming years.

Rising revenue

One of the most important drivers of improvements in a company's financials (and the Telstra share price), in my view, is whether revenue is climbing.

It's much easier to grow profit if revenue is climbing at a decent pace.

Telstra has a few operating segments, but mobile is the key division. In the first six months of FY25, Telstra's overall revenue increased by around 1% to $11.8 billion. Mobile revenue increased 5% to $5.6 billion – it's becoming increasingly important for the business and still growing at a good pace.

In the HY25 result, Telstra reported mobile subscriber growth of 119,000 over six months and growth of 349,000 over 12 months. I think Telstra can continue winning new subscribers because of its leading mobile network.

Mobile price increases are also helping the business grow revenue. It recently announced price rises faster than inflation for its postpaid users, which should help revenue growth in the coming financial year.

Profit growth expected

The business is also growing its bottom line at a good speed. Net profit is normally the key factor for affecting the share price and dividends.

In the HY25 result, Telstra's net profit for shareholders rose 6.5% to $1 billion.

As a telco, the business is able to spread its network costs across more users as it gets bigger, helping increase profit margins.

Broker UBS is expecting Telstra to make $2.28 billion net profit in FY25, and that it could rise to $2.51 billion in FY26 and reach $3.29 billion by FY29. That suggests 44% net profit growth between FY25 and FY29. I think this could be a good tailwind for the Telstra share price.

Compared to Australia's biggest blue-chip, Commonwealth Bank of Australia (ASX: CBA), the Telstra profit growth outlook looks much better. UBS is only predicting 18% net profit growth for CBA between FY25 to FY29.

Rising dividends to appeal to investors

In an economic environment where the RBA is cutting the official cash rate, some investors may be attracted to buying ASX dividend shares for passive income. This could push up the Telstra share price too if there are more buyers. Some economists are expecting a further three interest rate cuts in the next 12 months.

UBS is currently predicting Telstra could pay an annual dividend per share of 19 cents in FY25 and 21 cents per share in FY26. That suggests grossed-up dividend yields, including franking credits, of 5.7% in FY25 and 6.3% in FY26.

Overall, I think the outlook still looks positive for the Telstra share price.

The post 3 reasons why the Telstra share price could still be a buy appeared first on The Motley Fool Australia.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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