Investors in America Movil (NYSE:AMX), Latin America's largest cellular operator, certainly have the money these days to splurge on the latest third-generation (3G) handsets.
After all, shares of the company -- controlled by Mexican billionaire Carlos Slim Helu -- have been on a tear, doubling over the past year. They currently trade within a whisker of their record high of $26.15, reached on Sept. 28.
Whew, that's a heady gain. It beats the pants off the 16% gain recorded by the NYSE Composite Index over the same period and is well ahead of the 50% jump posted by AMEX Mexico Index. Still, it raises the question of whether investors should hang up on or hang on to the stock.
Hmm . (That's not a dial tone but the sound of me pondering.)
Let's take a quick look at the facts.
America Movil has benefited from rapid subscriber growth in each of the 11 markets it currently serves in the Americas (the company reported a total of 73.8 million wireless subscribers for the quarter ended June 30, 2005, up 11% sequentially and a whopping 47% increase over last year's period). Favorable currency translations (the Mexican peso and the Brazilian real gained, respectively, 4.8% and 12.8% against the dollar in the most recent quarter) haven't exactly hurt the company, either.
These factors led the company to post a 33.5% year-over-year increase in revenue for the quarter -- to around $3.94 billion (using an exchange rate of 10.8 pesos to the dollar) -- and net income of approximately $731 million ($0.40 per American Depositary Receipt), up 162% over the prior year's quarter.
Not too shabby, eh? But we all know that "past performance isn't an indicator of future results," right?
Consider this: According to Capital IQ, Wall Street analysts are now expecting America Movil to earn $1.16 in 2005 and $1.54 in 2006 -- implying an earnings growth rate of 33%. And with wireless penetration rates in the company's markets averaging less than 40% (compared with the 70%-plus in the U.S. and 90%-plus in Western Europe), I'm inclined to agree.
Let's not forget that America Movil continues to enter new markets (it recently completed takeovers in Chile, Paraguay, and Peru) and is ramping up new services.
Pretty sweet, but what's even sweeter is America Movil's valuation.
Despite the past year's run-up, shares of America Movil trade hands at a mere 22 times fiscal 2005 estimates (about equal to its projected long-term growth rate), whereas other wireless players such as Motley Fool Inside Value pick Vodafone Group (NYSE:VOD) and China Mobile (NYSE:CHL) trade at substantial premiums to their projected growth rates.
I'll grant you that the 1.5% yield offered by America Movil is below the respective 2.9% and 2.3% yields offered by the worthy companies mentioned above, but the company's superior growth prospects more than offset the difference.
In short, I believe that shares of America Movil will continue to power higher over the next few years and that investors should add at these levels and not even think of disconnecting from this stock.
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Will Frankenhoff looks forward to receiving your feedback at [email protected]. He does not own shares of any company mentioned in this article. The Motley Fool has an ironclad disclosure policy.
