Will T-Mobile Surge Higher After Recent Headlines?

With shares of T-Mobile (NASDAQ:TMUS) trading around $32, 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 US is stepping beyond cellphones and offering payment cards in the latest effort to differentiate its service from bigger rivals. The No. 4 U.S. mobile provider said it is offering a Visa card with banking features and a smartphone money management application with reduced-fee or zero-cost services for T-Mobile wireless customers. The company, which has gained attention with promises of more flexible and cheaper cellphone services, is hoping to attract a similar following in personal finance. The card, issued by a Bancorp subsidiary and licensed by Visa, is similar to a bank account. It will allow consumers to direct deposit paychecks and checks from smartphone cameras, make retail purchases, pay bills and withdraw cash from more than 42,000 ATMs with no fees.

T = Technicals on the Stock Chart Are Strong

T-Mobile stock has been surging higher since its initial public offering. However, the stock 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 signals 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

33.76%

6%

3%

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

February Options

Flat

Average

March Options

Flat

Average

As of Thursday, there 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?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

N/A

N/A

-16.67%

-65.5%

Revenue Growth (Y-O-Y)

N/A

27.45%

0.82%

3.73%

Earnings Reaction

-0.77%

4.12%

-0.78%

N/A

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

P = Excellent 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

-2.14%

-3.11%

-4.27%

-16.60%

-2.17%

T-Mobile has been a relative performance leader, 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 is offering payment cards in the latest effort to differentiate its service from bigger rivals. The stock has been surging higher since its IPO but is currently trading sideways. Over the last four quarters, earnings have been mixed while revenues have been rising, which has left investors optimistic about recent earnings announcements. Relative to its peers and sector, T-Mobile has been a year-to-date performance leader. Look for T-Mobile to OUTPERFORM.

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