Skip to main content

Millicom (MICC) - more growth on the way

Millicom International Cellular S.A. (MICC) provides cell phone service worldwide, especially in developing countries. Headquartered in Luxembourg, Millicom focuses on offering prepaid cell phone services across 15 countries including El Salvador in Central America; Paraguay in South America; Chad, Ghana, and Tanzania in Africa; Sri Lanka in south Asia; and Cambodia and Laos in Southeast Asia. These may not be on the top of your list of vacation spots but they are rapidly growing markets for cell phones. Rather than spending millions to deploy land lines, why not install some towers and sell prepaid cards and cell phones? Millicom has developed a sweet business model.

How good is their business model? How about quarterly revenue growth of 85% year-over-year, gross margin at 72.5% and operating margin at 27.8% and return on equity of 61%? This kind of growth is only available in emerging markets and that is the specialty of Millicom. Whereas cell phone penetration in places like the US and Europe ranges from 70% to 100%, only three out of ten people in developing countries has a cell phone. Clearly, there is room for further growth.

So is there a down side? Well, Millicom has a high trailing PE ratio, over 48; however, the forward PE is only about 16 so strong growth is expected. It can be a volatile stock: it sports a beta of about 5.25, good for traders but nerve wracking for buy-and-hold investors. On the other hand, there has been a solid up-trend in place since last July and, though the stock has bounced around some, it has basically stayed above its 20, 50 and 200 day moving averages pretty much the the whole time. Take a look at the chart below.




Click chart to view larger image


In summary, Millicom is taking advantage of a red-hot global trend. The rapid adoption of mobile phones in developing markets is aided by favorable demographics. These markets teem with teenagers and no age group has taken to mobile phones more than those who are under 25. Millicom's competitors are justifiably jealous. China Mobile attempted to buy them out last year but the deal fell through because China Mobile wouldn't offer what Millicom's management felt was a reasonable price. Last quarter's blowout numbers prove that premium valuation was well deserved. Look for Millicom to continue its winning ways.

Note: In looking for a stock that would qualify for the CNBC Million Dollar Portfolio contest I turned to the Zacks stock screener (find links to this and other screeners on the Trade Radar Investor Toolbox page). I set up a simple search for stocks with a market cap over $500M and a beta over 5. The high beta was chosen in the hopes that the corresponding volatility will be on the upside. Of the half dozen stocks that popped out I felt that the one with the most potential was Millicom.

Comments

Popular posts from this blog

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation

Trade Radar gets another update

Some of our data sources changed again and it impacted our ability to load fundamental/financial data. In response, we are rolling out a new version of the software: 7.1.24 The data sourcing issues are fixed and some dead links in the Chart menu were removed. So whether you are a registered user or someone engaged in the free trial, head over to our update page and download the latest version. The update page is here:   https://tradingstockalerts.com/software/downloadpatch Contact us if you have questions or identify any new issues.

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position. This first post in the series starts at the beginning: getting good investment ideas. Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets. As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professional