Can a Link with Apple Boost China Mobile?

With shares of China Mobile (NYSE:CHL) trading around $54, 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 is an investment holding company. The company and its subsidiaries provide 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 mobile phone carrier, may be getting closer to inking a deal with Apple (NASDAQ:AAPL). Apple needs to make up for lost market share in China, but has been reluctant to redesign the iPhone to work on China Mobile’s 3G network. A new chip made by Qualcomm (NASDAQ:QCOM) that allows the iPhone to work on both 3G and 4G networks, along with the rumored iPhone 5C, created specifically for emerging markets, have led some to speculate that a deal with China Mobile could happen soon.

T = Technicals on the Stock Chart Are Mixed

China Mobile stock has been struggling over the past several years. The stock is now moving higher but may be bumping up against historical selling prices. 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 slightly above its key averages, which signals neutral to bullish price action in the near term.

CHL

Source: Thinkorswim

Taking a look at the implied volatility 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

21.57%

96%

95%

What does this mean? This means that investors or traders are buying a significant 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 Thursday, 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 significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

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), and Vodafone (NASDAQ:VOD) — and sector?

China Mobile

China Unicorn

China Telecom

Vodafone

Sector

Year-to-Date Return

-7.58%

-4.36%

-10.40%

19.21%

1.83%

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

Conclusion

China Mobile is a telecommunications company that serves a growing number of Chinese companies and consumers. The company may need close to a deal with Apple to help boost revenues. The stock has not done well in recent years and is now trading near a historical selling zone. Over the last four quarters, earnings and revenue figures have been rising for the company. Relative to its peers and sector, China Mobile has been a poor year-to-date performer. WAIT AND SEE what China Mobile does this coming quarter.

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