T-Mobile US Inc Stock Might Be Growing Telecom, but It Is Not a Buy

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I had long assumed that every wireless carrier was stuck in neutral because they are merely commoditized products. So I never took a close look at T-Mobile US, Inc. (NASDAQ:TMUS) until now. Whaddaya know, TMUS stock is a growth story.

tmus stock

In looking at cumulative postpaid retail net additions since the start of 2016, T-Mobile stock is handily smoking Verizon Communications Inc. (NYSE:V) and AT&T, Inc. (NYSE:T). TMUS has added 6.14 million, while VZ had added 3.2 million, and AT&T has only 1.6 million.

In trying to suss out whatT-Mobile stock has that its competitors lack, I could find no discernible differences. In a smartphone market that is effectively saturated. With 95% of Americans owning a cellphone and 77% owning a smartphone, T-Mobile stock must have some intangible advantages.

That means things like advertising and marketing. It means things like customer service and the consumer experience. A BI Intelligence survey showed that 23% of  T-Mobile subscribers would not switch for any reason, while AT&T came in at 16%, Verizon at 15% and Sprint at 7%.

It also meansT-Mobile stock offers better perceived value, and most plans offer more bells and whistles than AT&T, for example. T-Mobile now has faster LTE speeds than the competitors.

T-Mobile stock has done quite well in the past few years growing its business. Revenues grew from $19.7 billion in 2012 to almost double that at $37.2 billion in FY16. Operating income wasn’t even income in 2012, it was a $6.4 billion loss.

FY16 brought in $3.8 billion. Net income went from a massive loss of $7.3 billion in FY12 all the way to a $1.46 billion gain in FY16. IN fact, that year doubled the previous year’s net income.

Both prepaid and postpaid revenues have been growing impressively during this period. The result of all this was very solid operating cash flow. With that cash flow, TMUS was able to plow money into growing its business.

TMUS is still growing. The TTM showed $40 billion in revenues, resulting in $22.7 billion in gross profit, and $4.1 billion in operating income. Net income is $2.15 billion for the TTM. That puts TMUS stock at almost 24x earnings.

It’s a bit pricey but considering it is the only growing telecom, and the only one that doesn’t seem to think it needs to buy up a Hollywood movie studio, that’s pretty impressive. The real question is whether or not TMUS stock is a buy, sell, or hold.

I have to say that, despite its growth, I’m not convinced to buy here. Wireless telecom is not a business of the future. It’s a saturated business that will only get worse. Were TMUS stock paying some big dividend like AT&T does, then I might have cause to suggest buying in.

Otherwise, however, if you are sitting on large gains, you may want to think about taking some profits and setting stop losses. I don’t see big catalysts that send TMUS stock higher.

Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.


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