Now Is The Time To Invest In China Mobile

The Chinese stock market lost over $3 trillion in wealth in a three-week period before the government intervened and stopped short selling, preventing management of companies from selling shares. These actions have led to the Chinese stock market stabilizing. The decline in the Chinese equity market has created  opportunities for investors to invest in the best Chinese companies that are now selling for lower than estimated business value. China Mobile Ltd. is one of these franchise consumer monopolies that Warren Buffett and Charlie Munger want to invest in. The company is the largest mobile cell phone network in the world with over 60% of the domestic Chinese stock market.

China Mobile Ltd. (CHL) is the largest mobile phone provider in the world.

The company has a monopoly in China with over 60% market share and a subscriber base that is double its closest competitor. The company has 815 million subscribers in its mobile network. China Mobile has 143 million 4G users that has twice the user base of Verizon, and the company has 5x as many subscribers that are working their way up the economic ladder to get a 4G phone.  The company stock has risen in value over the last few years slowly going up to $61/share. At its current price, China Mobil is selling for a fair value and offering investors a 10% pretax return.

I do not know what the Chinese market is going to do over the next few years, however I do know that the Chinese economy will continue to grow, and China Mobile will keep its advantage over its competitors and produce above average returns over the next 10 years. In 2013, the company signed a deal with Apple (AAPL) to sell iPhones in the country. Since 2013, Apple has gained a 12% market share thanks to its multi-billion dollar deal with China Mobile.

The company at its current price of $61/share is selling for a 3% discount to the estimated business value.  A 3% discount isn't that big, however, over the next few years investors will have the chance to add to that entry price of $61/share by averaging down. China Mobile produces more than enough earnings to pay off its debts within five years and has more than 2x its pretax earnings to pay its interest on its debts. The company's earnings have grown by 13% over the last ten years and has an earning yield of 9.1%. Currently China Mobile is selling for 13x its pretax earnings and 14x its operating earnings. Over the last ten years the company has produced returns on equity of 13%, return on capital of 23%, and return on assets of 8%. These returns are above average and show that the company's management is excellent at allocating capital.

Over the next ten years, China Mobile will keep up its monopoly over the Chinese cell phone network market and grow its earnings by at least 10%. Its dominance over the market gives the company a moat that protects it from competitors who could erode its economic earnings base. The company will be earning more in ten years than it is earning today. Investing in China Mobile at its current price of $61/share, you are getting a profitable company that will be growing its estimated business value by 10%.