Now May Be The Time To Speculate On Sprint Stock

  • Everybody hates the Sprint stock right now. It's selling for half its annual revenues.
  • T-Mobile has passed it in subscribers, it's getting out of wired long distance.
  • But Softbank CEO Son-San will not surrender his dream of building a global carrier.
Is this the time to speculate on Sprint

You make money speculating on a stock when it’s hated. You’re betting that it may eventually be loved.

Sprint (NYSE:S) may be the most hated company on the street right now. It’s trading at around $4, down one-third from where it was when current CEO Marcelo Claure took over last August. Competitor T-Mobile (NYSE:TMUS) passed it in market share recently and its CEO, John Legere, can’t stop laughing about it.

The company is abandoning its wired long distance business . Analysts see any comeback as being five years away and are worried about "financial distress."

Sprint share price recently fell by over 8% in one day and criticism is growing of Claure’s pay package.

This is not just talk. Sprint revenue has been falling steadily for the last four quarters, and profitability is nil. Debt is approaching 50% of assets as it builds-out frequencies that were previously Clearwire and Nextel.

Sprint revenue
Sprint stock revenue

So where is the bullish case? A new program called "Direct to You" is getting good reviews from people I trust. Sprint has just launched another ad program starring athlete-turned-model David Beckham. The company is only mid-way in converting old Radio Shack stores into Sprint outlets. Masayoshi Son is getting personally involved in operations  and has not yet abandoned his dream of creating a single worldwide carrier, which could be incredibly powerful. He also has the money to get it done, thanks to a large stake in Alibaba (NYSE:BABA).

From a purely technical standpoint, the Sprint stock looks oversold right now. Its market cap of $15.2 billion represents just six months of revenue. T-Mobile, by contrast, is selling at close to its revenue rate. If Sprint were priced the way its rivals are it would be worth at least 50% more than it is, or about $6/share.

The question is, how long will this take? My guess is it will take at least a year, and you will need to buy a lot of shares, at $4/each, to get a pop in your portfolio. I have personally lost money on Sprint betting on a turnaround too-early. If the Sprint stock falls to anywhere $3/share you need to bail, but that downside takes it to a place where a buy-out by even DISH (NASDAQ:DISH), which currently has a similar valuation, becomes possible. So I don’t think that’s going to happen.

And there you have it. A stock that has been beaten-down rather badly, that is trading near its year-long low in a rising market, a stock that everyone hates. But a stock that may not be as bad right now as an investment as it appears to be.

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