Tuesday, April 17, 2012

Lets look at China Mobile (CHL) and trades on the New York. For discussion and to determine the entry and exit points. Using P/E and CF/S
By using the historical P/E ratio and CF/S ratio one can determine what the entry and exit positions should be.

CHL is a public company that provides communication services and products in China. So here we go: for the past 3 years CHL has had an average P/E trading range of 12.33 (high) and 9.47 (low). Over a longer term.

CHL had a average P/E ratio of 21.08(high) and 11.53(low) over the past 13 years. CHL has also had some wild swings in the past, P/E values for example in 1999 CHL had a high P/E ratio of 134.4 and a low P/E ratio 7.9 in 2003.

CHL, over time has an average annual Earnings growth of 6.74% over the past 3 years and 31.1 over the past 13 years. For the purposes of this analysis I am using a 8% increase to determine what CHL should be valued at.

Knowing or at least estimating future earnings you can estimate the share price. In this case CHL should earn about $5.32 in 2012 and using the average P/E the estimated trading range should be 65.67(high) and 50.40(low).

CHL is a dividend payer which started in 2003. Over the past 3 years CHL has increased its dividend by 4.47% annually, for the past 9 years CHL has increased its dividend 39.25% compounded. Lets hope that the increases continue. Currently CHL is paying a 3.40% based on its current price $54.79.

Looking at the price per cash flow ratio (P/CF) CHL has increased it’s CF/S. CHL’s 15 year CF/S is 189.6(high) and 108(low) however the three year average gives a different picture. The 3 year average is 386.6(high) and 297.6(low) Which makes CHL an expensive stock to purchase on a cash flow side.
CHL’s CF/S is estimate in 2012 to be flat at 7 per share this gives me a share price range of 66.98(high) and 50.40(low). CHL is closer to its low based on its CF/S

Now on to how to trade, as I’m looking to purchase shares of CHL so would be writing a put at my price estimates in this case I’m looking to write a Put Option at $50 on the www.cboe.com . So I’m looking to sell 10 June 2012 Put contracts for the 50 strike price and collect the premium of $.75 /share.
If your wondering on what the return would be? 50000 /750 = 1.50% at an annual rate of 4.5% On a risk side it maybe better to leave it in a GIC as the payout is the about the same.

If you’re a current owner of CHL, you could sell a covered call on the stock you could look at the June 55 calls with a current $1.50 premium. Even If you bought it today at the current price of $54.79 and wrote the call the numbers would collect 150 dollars per contract for a 2.74% and the best case would be 3.12% for the two month position. "Before fee’s"

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