Why Now Is The Time To Buy MetroPCS

| About: T-Mobile US, (TMUS)
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MetroPCS (PCS) shares have struggled over the past year, mainly from a large one-day drop on August 2, 2011, after badly missing earnings. Recently the stock has begun to rebound and there is some speculation that MetroPCS will rebound because of its unique position in the market. In this article I should how the company has a chance for success in the near future and why it is currently a good buy.

As of December 2011, MetroPCS had 9.3 million subscribers, making it the 7th-largest mobile carrier in the United States. It utilizes CDMA and LTE technology (which Verizon Wireless uses) and boast a 4G network although its 4G speeds are sometimes compared with larger networks' 3G speeds. What makes MetroPCS' angle interesting is that it offers an Android phone with no contract and unlimited data in some of its plans, which puts it in a league of its own. However, there are still some drawbacks.

Smart phones on the MetroPCS network do not have the same capabilities as smart phones on the larger networks, but service is a lot cheaper and with no contract. On its 4G network, the $50 per month plan only offers 1 GB of multimedia streaming while the $60 plan offers unlimited streaming. A similar plan with 2 GB of data at Verizon costs around $120 per month. The two services are definitely not the same quality, but there are a lot of more basic cell phone users who could go for those savings.

The bet that MetroPCS is making is very smart considering its position. It is looking to attract less active mobile phone users, who want most of the perks of what major carriers can do, but without a contract, overage fees, or high pricing. This may not attract the entire market, but the company could definitely make a move to become the 5th-largest provider within the next two to three years.

Now is a good time to buy MetroPCS shares as the stock is very undervalued. Shares have a one-year forward P/E ratio of 10.38 and a 2-year forward P/E ratio well under 9, with earnings growth expected to be 26.9 percent per year for the next five years. There are obviously a lot of scenarios that can play out during this time, but right now, it seems like a very cheap stock.

There is still a lot of opportunity for investing in telecom stocks, both here and abroad. Right now, I believe that among U.S. mobile operators, MetroPCS stock has the most growth potential by far over the next two to three years. For aggressive investors, it is a definite buy. With a good business model, low valuation, and a 1-year growth target 33.3 percent higher that its closing price on March 8, MetroPCS could have giant returns.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.