In January, Apple (AAPL 0.10%) finally inked an agreement with the world's largest wireless carrier, China Mobile. But the agreement wasn't enough to get the Street excited about Apple stock. It still trades incredibly conservatively, at just 13 times earnings. Is the market making a big mistake?

The best argument for Apple's potential in China
A report from Umeng, China's largest analytics firm, that made rounds this week (via analyst Benedict Evans) provides some very useful data about the smartphone and tablet market in China. But two points in the Umeng presentation, together, make an extremely compelling case for Apple's opportunity in the country.

First, consider that the smartphone market in China grew from just 380 million active devices in the first quarter of 2013 to 700 million by Q4. That's not just any growth, that's explosive growth. Apple's opportunity to grow annual sales incrementally in the country has not come to an end by any means -- especially with Apple's recent arrangement with China Mobile to sell the iPhone 5s and the 5c on the network for the first time.

Second, China's premium phone market is booming. Five hundred dollar-plus-priced smartphones account for 27% of China's active smartphones, second only to the $1-to-$150 price segment.

Data for chart retrieved from Umeng's 2013 report.

This is great news for Apple. The premium segment, of course, is where Apple shines. In fact, the iPhone makes up 80% of the active devices in this segment, according to Umeng.

Taken together, that's a fast-growing smartphone market in which the Apple-dominated premium priced segment is booming. Smells like upside opportunity.

The China Mobile growth story
The exact implications of Apple's China Mobile deal are hard to estimate. But it would certainly be difficult to argue that the long-term opportunity isn't a big one.

As of last count, China Mobile had a whopping 772 million wireless customers -- more than twice the population of the United States. That figure alone speaks of Apple's opportunity with the carrier. But there's more: The value proposition for a premium smartphones on the network is about to get a whole lot better. Apple CFO Peter Oppenheimer explained in Apple's fiscal 2014 first-quarter earnings call that "China Mobile's 4G service is only available in 16 cities today, and they plan to complete the rollout of more than 500 thousand 4G base stations, which will cover more than 340 cities by year-end."

The upside potential, combined with Apple's conservative valuation, exposes an excellent long-term investment opportunity. As the world's largest smartphone market, Apple could see a significant boost to its most profitable product segment in the coming years as Chinese citizens continue to justify spending the extra money to buy an iPhone. But meaningful growth like this isn't priced into the stock.

To top it all off, analyst Benedict Evans estimates that China may now have more iPhones users in the country than in the United States. So any meaningful growth in smartphone sales in China will likely be noticeable on Apple's bottom line.