Question

How would you respond to this post?

The two companies that will be compared are Verizon (VZ) and T-Mobile (TMUS), both are direct competitors. Information will be gathered from the MSN Money website. In terms of management efficiency ratios and key ratios, VZ's return on equity is 33.6% compared to the industry, which is at 10.24%. VZ's return on assets is 7.11% compared to the industry at 4.99%. VZ's return on capital is 8.41% compared to the industry at 5.04%. VZ income/employee is at 141.60k compared to the industry at 28.73k. VZ inventory turnover is 39.69% compared to the industry at 19.36%. As seen by the key metrics listed, Verizon outperforms the competition in every category. Verizon is a tech giant that dominates not only the cellular communication industry but also the cable and internet industries. Some argue that they are walking a fine line of monopolistic behaviors and operations, which is why Verizon should be concerned about the exponential growth that T-Mobile has been experiencing. Although T-Mobile’s stock price is higher than Verizon’s, Verizon operates a much larger organization. Currently, T-Mobile’s stock prices are at $68.99, and Verizon’s are at $54.21 and falling. VZ is only reporting a -0.09 and -0.16% decline, whereas T-Mobile is reporting -11.28% and -14.40% decline. This is partially to do with the broader product and service offerings that VZ offers versus TMUS. In addition, VZ will continue to outperform the competition because they offer essential services such as cable and internet. These two services are being utilized even more now that half of the country is being quarantined.  T-Mobile’s stock price is higher because of their dividend structure and the finalization of the Sprint & T-Mobile merger.

Answer 1

From the above post, I understand that both the company i.e, Verizon(VZ) and T-Mobile ( TMUS ) are the players of the same industry ( Tele-Communication). the post tells us, why even after beating the whole industry by Verizon, Why the share price of T-Mobile is higher in comparison to Verizon?

According to Management Efficient Ratios and Key Ratio given in the post, we clearly understand that Verizon is beating the whole industry. Return on Equity, Return on Assets, Return on Capital Employed are a set of ratios that measure how effective management is using a company’s assets to create profits. Inventory turnover ratio measures Inventory turnover shows how many times a company has sold and replaced inventory during a given period. Everything which is provided clearly indicates, Verizon is dominating the whole industry.  

Although the share price of Verizon is lower than the T-Mobile and even keeps on falling, even after dominating the whole industry. It is because of the news of the finalization of the merge between Sprint and T-Mobile. For the news of merge between them, people are grabbing a hope that , merging the companies will lead to combining the resources of both the companies which may result in better performance in future. So investors are buying more shares of T-Mobile with the hope to earn more return in the future. As investors are buying more shares, the price of T-Mobile share is increasing. Therefore the price of a share of T-Mobile is higher than Verizon .