Should You Consider T-Mobile?

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.

T-Mobile CEO John Legere apologized on his Twitter account for saying on Thursday that rivals are “raping” consumers by overcharging them. “The drawback to having no filter when I speak — sometimes I need a filter. Genuinely apologize to those offended last night,” Legere said on Friday. “I know I have a rated-R vocabulary, but even I can go too far.”

A self-styled rebel who routinely wears a hot-pink T-shirt to promote T-Mobile, Legere has helped the fourth-largest wireless carrier outpace its bigger competitors in subscriber additions this year. If Sprint (NYSE:S) reaches a deal to buy T-Mobile, Legere is likely to run the combined company, people familiar with the matter said last month.

T = Technicals on the Stock Chart Are Strong

T-Mobile stock has been surging higher since its initial public offering. The stock is currently trading near all-time highs and looks poised to continue. 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 signals neutral to bullish price action in the near-term.

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

33.63%

10%

8%

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

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of Friday, 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 small 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), and Sprint (NYSE:S) — and sector?

T-Mobile

Verizon

AT&T

Sprint

Sector

Year-to-Date Return

-1.19%

0.3%

0.77%

-22.9%

-4.75%

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. Company CEO John Legere apologized on his Twitter account for saying on Thursday that rivals are “raping” consumers by overcharging them. The stock has been surging higher since its initial public offering and is currently trading near all-time highs. 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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