108% Returns, Still a Buy
Piyush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Metro PCS (NYSE: TMUS) is a “pay as you go” wireless telecom company offering wireless, voice, and data services to its users on a prepaid basis. The US based company in addition to wireless services is also involved in the sale of handsets. Its major share of revenue comes from the services it provides, thanks to the subscriber base of 9.5 million. The shares of the company with a market capitalization in excess of $4.3 billion have risen by more than 34%, in the last year and here are a few reasons why we are "still bullish" on Metro PCS.
The company’s service plans attract cost conscious customers, who want the best in technology at highly competitive prices. Metro PCS is known for its unlimited voice and text plans, which are available at the cheapest rates in the market. Also to service the cost conscious, the lowest 4G LTE smartphone on the telecom provider’s retail network is sold for as low as $149.
Metro PCS is witnessing a consistent growth all thanks to the 4G LTE smartphones. It’s the sale of these smartphones that the average revenue per user has significantly increased. In order to retain its growth in ARPU’s, the company recently inked a deal with Huawei telecom which would add Huawei Activa 4G on Metro PCS’ retail shelf.
In order to beat the competition, Metro PCS in August, launched the country’s first commercially available Voice over LTE service. This would allow the users to enjoy reduced calling rates, better call quality, and reduced connection times. For the company, the introduction of the new technology is expected to lure new customers as competitors like AT&T (NYSE: T) and Verizon (NYSE: VZ) won’t be able to rollout the service anytime in 2013. On the back of this, Metro PCS can expect a significant increase in its both subscribers’ base and market share.
From the comparative chart of competitors, we can see that since the launch of the new technology, Metro PCS’ stock price has seen more than 100% upside.
It is due to this technology launch, Metro PCS looks ripe for an acquisition by Verizon or AT&T as both the companies would like to have their hands on the new technology before they have lost their subscribers to the MetroPCS. Sprint (NYSE: S) which another telecom service provider in the market, failed to acquire T-Mobile last year. If its goals to expand are still intact, Sprint could also very well be in the queue to acquire the company, and in the light of three possible acquirers, the stock price of Metro PCS could skyrocket.
The recent quarterly results of Metro PCS saw a massive 75% in earnings. The EPS was 95% higher than estimated which clearly beat the market expectations. Revenues also saw a 6% increase and in one of the most recent announcements, a drop in user cancellations was reported. The company looks to have a solid mix of topline and bottomline, and this is one stock that’s hard to miss.
|
Company |
P/E |
P/S |
Net Profit Margin |
|
Metro PCS |
13.28 |
0.87 |
6.61% |
|
Verizon |
45.75 |
1.15 |
10.18% |
|
Sprint |
50.65 |
1.72 |
3.67% |
|
AT&T |
N/A |
1.49 |
-11% |
The financial metrics show that Metro PCS has the lowest P/S ratio with the second highest net profit margin and to add to it the stock is also the most undervalued stock amongst the competitors.
The growth story of Metro PCS looks compelling. Analysts believe that Voice over LTE could change the game. Metro PCS has a good mix of financial metrics and reported a stellar quarterly performance. We believe that the stock is still headed north, and it due to these reasons that we have a strong Foolish Buy rating for Metro PCS.
PiyushArora has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
