Scrappy U.S. telecom underdog T-Mobile (TMUS -0.50%) is no longer much of an underdog, though it still has plenty of spunk in its step.

After its takeover of Sprint in the spring of 2020, the company leapfrogged over AT&T (T -1.83%) to become America's second-largest mobile network, with 98.3 million customers at the end of the second quarter. Though T-Mobile took on ample debt to pull it off, it's still a much more nimble enterprise than both AT&T and Verizon (VZ -0.51%), and it remains a better growth stock within the U.S. telecom industry than its two rivals.

Let's take a closer look at whether the T-Mobile stock is a buy for your portfolio.

A city skyline. A bubble with 5G is illustrated along with other bubbles containing electronic devices.

Image source: Getty Images.

Applying pricing pressure

T-Mobile's development has been an impressive story over the last decade. While often behind the technology curve as far as network speed and reliability go, T-Mobile's run in the last decade can be attributed to its "un-carrier" model for providing competitive pricing to customers.

T-Mobile's total customer count and revenue were 33.2 million and $20.6 billion, respectively, in 2011. Compare that to its nearly 100 million customers and trailing 12-month revenue of $51.7 billion as of the end of June 2020. T-Mobile's advance on these two metrics has come at a cost -- its operating profit margin of 10.6% over the last year trails behind Verizon (22.2%) and AT&T (16%) -- but it has nonetheless catapulted the company to the position of legitimate contender for mobile network supremacy in the U.S.

That's because, after the inclusion of Sprint, T-Mobile expects to squeeze $6 billion in annual cost savings by merging the two businesses together. That would more than double the company's trailing 12-month operating income of $5.48 billion (if it can pull it off). Additionally, it is still winning handily in the net new subscriber battle. It reported over 1.2 million net new subscribers during Q2 2020. If it can maintain its pace of new subscriber additions, this growth story is far from over.  

However, with mobile services as a basic staple these days, T-Mobile's top-line trajectory will likely slow in the coming years. Substantial debt was also taken on to complete the merger with Sprint -- totaling $72.5 billion at the end of June (though still far less than the respective $169 billion and $113 billion in debt at AT&T and Verizon). The stock trades for over 36 times trailing 12-month earnings as of this writing, seemingly pricing this company like it's a high-growth tech name. However, factoring in the expected boost to the bottom line in years ahead as redundancies are eliminated post-Sprint takeover, the premium price tag isn't unreasonable.  

A new leader in the era of 5G?

Central to T-Mobile's reasons for adding Sprint to the fold is the new era of mobility that's dawning with the soon-to-be broader adoption of 5G network-compatible devices. And thanks to the merger, T-Mobile now has the widest coverage for the nationwide rollout of its next-gen network. It has twice the coverage as AT&T and many times more than Verizon, although Verizon's 5G strategy differs significantly from its peers' and its 4G LTE network on average still beats T-Mobile and AT&T 5G.  

Nevertheless, scrappy T-Mobile could have a big advantage on its hands when it uses its new 5G signal to boost its capabilities and narrow the gap with Verizon. And undercutting competitors on price remains a core tenant for this telecom, a further bonus it could utilize in the early stages of the 5G race. Verizon has started to pay attention to this price war and recently announced the acquisition of TracFone -- best known for its prepaid phone subsidiary Straight Talk -- from America Movil (AMX -1.65%). But with its reputation for low prices and now-leading 5G coverage, T-Mobile could quickly become America's top mobile operator by customer count as subscribers upgrade their phones to utilize the new network.  

Of course, 5G is about much more than just faster phone service. Eventually, the U.S. telecom operators foresee their mobility services connecting all sorts of things -- from industrial equipment to cars to wearable devices. But for now, it's all about switching over phone subscribers from 4G, and T-Mobile looks poised to continue its advance. Verizon and AT&T are the way to go if dividend income is what you're after, but T-Mobile should be the winning stock for all-out growth in the telecom world as it makes hay from its new prize, Sprint.