Will China Mobile Stock See a Rise in Demand?

With shares of China Mobile (NYSE:CHL) trading around $53, is CHL 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

China Mobile provides mobile telecommunications and related services in 31 provinces, autonomous regions, and directly administered municipalities in mainland China and Hong Kong. China Mobile’s products and services include voice services, which refers to the business where customers make and receive calls with a mobile phone at any point within the coverage of the company’s mobile telecommunications networks and data services, which comprise short message service and multimedia messaging service, wireless data traffic, and applications and information services.

China Mobile, the world’s largest wireless company by subscribers, has started making equipment orders for the building of a 4G network. Chinese companies Huawei and ZTE each received 25 percent of the $3.2 billion contract with European companies Ericsson (NASDAQ:ERIC), Alcatel-Lucent (NYSE:ALU), and Nokia (NYSE:NOK) receiving 10 percent each. Building a 4G network is seen as a crucial step toward the carrier finally getting Apple’s (NASDAQ:AAPL) iPhone.

T = Technicals on the Stock Chart are Mixed

China Mobile stock has not done very well in the last several months. The stock is now trading near the middle of its yearly range. 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, China Mobile is trading between its key averages which signal neutral to price action in the near-term.

CHL

(Source: Thinkorswim)

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

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

China Mobile Options

18.94%

3%

0%

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

Put IV Skew

Call IV Skew

September Options

Flat

Average

October 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 very 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 Increasing 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 China Mobile’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for China Mobile look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

4.85%

3.10%

9.22%

11.60%

Revenue Growth (Y-O-Y)

6.92%

8.45%

14.04%

14.20%

Earnings Reaction

N/A

N/A

N/A

N/A

China Mobile has seen increasing earnings and revenue figures over the last four quarters.

P = Weak Relative Performance Versus Peers and Sector

How has China Mobile stock done relative to its peers, China Unicorn (NYSE:CHU), China Telecom (NYSE:CHA), Vodafone (NASDAQ:VOD), and sector?

China Mobile

China Unicorn

China Telecom

Vodafone

Sector

Year-to-Date Return

-8.51%

-6.11%

-7.14%

18.30%

2.09%

China Mobile has been a weak relative performer, year-to-date.

Conclusion

China Mobile is a telecommunications company that serves a growing number of Chinese companies and consumers. The company looks like it may be preparing its network to carry Apple’s iPhone. The stock has not done very well in recent months and is now trading near the middle of its yearly range. Over the last four quarters, earnings and revenue figures have been rising. Relative to its peers and sector, China Mobile has been a weak year-to-date performer. WAIT AND SEE what China Mobile does this coming quarter.

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