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American investors often look at AT&T (NYSE:T) and Verizon (NYSE:V) as the staples of telecommunication within a portfolio. Both of these company's have incredible cash-flow, relatively low valuations, and high dividends. However, what they do not have is the growth potential that the largest telecommunications provider in the world, China Mobile (NYSE:CHL) has.

When you look at the American market, it is flooded with cell phones and smartphones owned by everyone from laborers to CEOs. The landscape is drastically different in China, because the population demographics are just beginning to move in the direction of a large middle class. The Chinese market has roughly 67% penetration in population that has a smartphone. This leaves millions of potential customers that are yet to adopt the American standard of a cell phone. To put CHL current business in perspective, it has more users than T and V combined, and as evidenced by the chart below, has a projected growth rate into 2012 that blows away that of any telecommunication company as stable as itself.

(click to enlarge)

(CTIA Numbers)

This type of growth is unprecedented and is a direct result of the Chinese cultural change that has been occurring for the past decade. When individuals speak of a Chinese slowdown, many are referring to the decrease in demand that is occurring for Chinese exports by countries like the United States and Great Britain. What is exceptional about CHL is that it only has to concern itself with the demand present within China, and that figure is going to continue to grow for many years to come. This is a Chinese growth play that can limit one's risk due to the stock's reliance only on the Chinese population, and not the country's currency and exchange with others.

There are two main areas for growth within CHL business. The first is organic growth through simply more people in China wanting cellular communication devices. Due to the fact that China's annual 5 year growth rate is roughly 7%, this allows for millions of people in China to need phones every year. This alone opens the door for incredible growth into the next 5-10 years. The other area for growth is within the lack of 3G networks within China. Currently, 3G penetration is only 15%. Due to Qualcomm Communications' (NASDAQ:QCOM) recent announcement that it will be producing a chip that will be compatible with CHL's 3G network, the time may be approaching for that number to skyrocket. For the same reasons mentioned above, this growth will come out of the increased demand created by the mere numbers of people in China.

When examining CHL financials, the numbers are staggering when looked at alongside its American counterparts.

Forward Price/Earnings:

  • CHL: 10.15
  • V: 14.94
  • T: 13.31

Profit Margin:

  • CHL: 23.84%
  • V: 2.36%
  • T: 3.24%

Return on Equity:

  • CHL: 20.52%
  • V: 12.23%
  • T: 4.01%

These financials indicate that CHL is priced below its peers, is nearly 10 times as profitable, and uses its equity far better than both V and T. This is important as it illustrates that CHL is reasonably priced at roughly the $50 price target and has room to grow, especially considering its growth potential. The company's dividend is also of particular note. The company is currently paying a 4% cash-dividend, which is a 13% increase over FY11. This type of dividend growth lends itself to a company that is rewarding shareholders through income and is willing to pass along its successes to shareholders. Though the 4% yield is slightly below T and V, it has room to grow in the same way the company does.

(click to enlarge)

(Yahoo! Finance)

CHL has incredible potential due to the rising middle class in China along with the lack of penetration within China's 3G networks. This is not the only play for China's telecommunication boom, but it is larger and more stable than its Chinese peers China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA). CHL is a company poised for continued growth into the next decade no matter the growth in China's GDP.

(All financial metrics referenced above are obtained from Yahoo Finance, CNBC Analytics, S&P Capital IQ and Thomas Reuters.)

Source: China Mobile: More Room To Grow Than AT&T And Verizon Combined