I usually deal with charts but recently I had a look simply at...

I usually deal with charts but recently I had a look simply at TLS's PE ratio.

My opinion on the valuation of TLS based on simple PE ration is that TLS is too expensive even after this recent plunge and at $4.84.

Yes, they had a recent buy back and that would have an improving affect on the PE as it would make the "E" (earnings per share) in the equation bigger. This is because the earnings is calculated based on "per share" and the "per share" part, the shares on offer, has reduced by the buy back.

Telstra website currently says, 11,943,488,320 shares are out there.

Commsec lists the PE ratio as 14.25 and Etrade also at 14.25.

To me, a PE ration of 14.25 for a stock that has a slim chance of growing in the next 12 to 36 months (had many years chance to grow, so why would it suddenly grow in the next 12 months?), is too high.

I feel a PE ration of say 12 to 13 is more representative of TLS's situation. Current half year earnings per share is reported at 14.8c. Say by June 30, the full year earnings 2017 per share is 34c max.

Then a PE of 12 gives a share price of P=12 x 0.34 =$4.08 and a PE of 13 gives, 13 x 0.34 =$4.42.

Just out of interest, a PE of 14, gives $4.76.

At the current share price of $4.84, the TLS PE is 4.84/0.34=14.24 (as commsec and Etrade state).

This compares with banks WBC=14.6, NAB=13.25, ANZ=14.75, CBA=15.37.

Telstra currently has a PE similar to the banks and in the case of National Bank, is more expensive than. And these banks have stronger potential to at least maintain their profits unlike TLS's shock drop.

In short, TLS is too expensive considering, 1. This recent poor profit result, 2. Competition pressure, 3. Pending ACCC declaration, 4. Future growth prospects and 5. Post NBN earnings replacement.

Based on TLS not having a PE ration any bigger than 14, under the above current conditions, gives a fair price and valuation of $4.76 at best.

A price around $4.40-$4.50 is very possible.

You got to remember, TLS has had a very low PE in the past as shown (source, Etrade). Those PE's (if applied now) will easily put this stock under $4.00 now.

Don't panic, but know this.