Analysts say now is the time to dump T-Mobile, but it’s not what you’re thinking

T-Mobile isn't just the fastest growing and most innovative of the four major U.S. wireless firms (and yes, Boost Mobile is number four), its shares have also appreciated the most compared to its rivals. Over the last five years, T-Mobile's stock has soared 173.54% giving the company a market capitalization of more than $260 billion. Over the same five years, AT&T has seen its shares decline 24.73% to $21.85 and a valuation close to $157 billion.

Verizon's shares are also in the red over the last five years having dropped 27.94% to $43.99. The largest wireless provider in the U.S. has a market cap of slightly over $185 billion. But T-Mobile's shares have become a must-own by institutional investors such as hedge funds, and mutual funds. With the inclusion of T-Mobile in the S&P 500 since 2019, index funds must buy the shares as well. However, two analysts with Scotiabank Global Equity Research named Maher Yaghi and Joey Chan think that now is the time to take profits on the stock.

Yaghi and Chan downgraded T-Mobile from Sector outperform to Sector Perform. In Wall Street parlance, the analysts say that they don't think T-Mobile's stock will continue to perform better than the shares of other companies in the same industry. Instead, the pair sees T-Mobile's stock (TMUS-NASDAQ) trading in line with the shares of other wireless companies.

The analysts say that the medium-term outlook for TMUS is still impressive and they expect the carrier to report that it added a net 700,000 postpaid phone subscribers during its latest quarter. They say that T-Mobile generated free cash flow of $4.7 billion during that quarter with a 6.5% increase in earnings before interest, tax, depreciation, and amortization (EBITDA).

However, the analysts' short-term forecast was quite guarded as they wrote, "That said, and given the significant stock performance in the last months for what is still inherently a telecom company, we believe that the short term upside might be limited at this point, especially post the company's analyst day which generated positive momentum."

In other words, Yaghi and Chan are recommending that in light of the stock's upward movement during just this year (up 38% in 2024 compared to 13% for Verizon, and 27% for AT&T), traders should dump T-Mobile from their holdings and wait for a better (read lower-priced) opportunity to buy back the stock.