Can T-Mobile Move Higher?

With shares of T-Mobile (NASDAQ:TMUS) trading around $33, is TMUS an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

T-Mobile offers mobile communications services under the T-Mobile brands in the United States, Puerto Rico, and the U.S. Virgin Islands. Its service offerings include postpaid and prepaid wireless voice, messaging and data services, mobile broadband, and wholesale wireless services.

The merger between Sprint (NYSE:S) and T-Mobile was looking good as the new CEO would have been from the company to be acquired. However that hit a snag when FTC sued T-Mobile recently and it accused the company of adding millions of $ in the form of bogus charges to the bills of subscribers until the last December. CNBC’s Squawk Alley team discussed this and they explained how the bills are being loaded with a lot of additional charges not just by T-Mobile but also a lot of other telecom companies such as Sprint,  AT&T (NYSE:T) or Verizon (NYSE:VZ) . “All of us who have looked at a cell phone bill, know that there are all kinds of charges on there that are probably bogus,” Jon Fortt stated. He thinks that the government had a fee for a long time on this which was going nowhere.

However, the charges might not impact and hurt T-Mobile specifically as almost every one of the subscribers look at the cell phone bills suspiciously and if the users can quickly respond to this by alerting the authorities with the irregularities this might also bring other telecom companies such as AT&T, Verizon and Sprint into suspicion too which is not very hard and looks feasible. Michael Santoli, Senior columnist at Yahoo! Finance, said that though this charge would act as a counter to the new image of T-Mobile US as being a friend of the cell phone user, it might not change the business proposition of the company. He thinks that the merger might actually create a strong No.3 in the telecom market. Santoli feels that the companies need to be aware of the evolution of the products for the future and they can’t just rely on the present.

T = Technicals on the Stock Chart are Mixed

T-Mobile stock has struggled to make positive progress over the last couple of months. The is currently trading sideways and may need time to stabilize before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, T-Mobile is trading above its rising key averages which signal neutral to bullish price action in the near-term.

TMUS

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of T-Mobile options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

T-Mobile options

34.48%

36%

34%

What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Flat

Average

September Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on T-Mobile’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for T-Mobile look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

-195%

93.33%

-99.65%

-105.13%

Revenue Growth (Y-O-Y)

47%

39.07%

36.69%

27.54%

Earnings Reaction

1.1%

-5.69%

-0.77%

4.12%

T-Mobile has seen decreasing earnings and increasing revenue figures over the last four quarters. From these numbers, the markets have been pleased with T-Mobile’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has T-Mobile stock done relative to its peers, Verizon (NYSE:VZ), AT&T (NYSE:T), Sprint (NYSE:S), and sector?

T-Mobile

Verizon

AT&T

Sprint

Sector

Year-to-Date Return

-0.92%

1.16%

1.93%

-20.00%

-3.45%

T-Mobile has been an average performer, year-to-date.

Conclusion

T-Mobile is attempting to revolutionize the communications industry by providing less restricted products and services to consumers and companies. The company was recently sued and accused by the FTC for adding millions of dollars in the form of bogus charges to the bills of subscribers until the last December. The stock has struggled to make positive progress over the last couple of months and is currently trading sideways. Over the last four quarters, earnings have been decreasing while revenues have been increasing, which has left investors pleased. Relative to its peers and sector, T-Mobile has been an average year-to-date performer. WAIT AND SEE what T-Mobile does this quarter.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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