I'm a believer in growth stocks. As an analyst for our Motley Fool Rule Breakers service, I think you should be a believer too. But even I have to admit some growth stories are bogus, hence this regular series.

Next up: Windstream (NYSE: WIN). Is this rural telecommunications provider the real thing? Let's get to the numbers.

Foolish facts

Metric

Windstream

CAPS stars (5 max)

****

Total ratings

748

Percent bulls

95.6%

Percent bears

4.4%

Bullish pitches

125 out of 132

Highest rated peers

France Telecom, AT&T (NYSE: T), China Tel

Data current as of Sept. 18.

For the most part, Fools believe that Windstream is worth owning at present levels. But the bears have fair reasons to be concerned.

"They may have a strong niche market, however their financials look terrible. Too much debt in relation to equity, EPS is like a third of its previous high, and sales are flat since 2004," wrote CAPS investor boilerup47203 last month.

Fair points, all. But Windstream has also enjoyed marked improvement in key areas over the past year. Debt as a percentage of equity has been cut in half while revenue growth has returned.

The elements of growth

Metric

Last 12 Months

2009

2008

Normalized net income growth

(12.4%)

(21.2%)

0.3%

Revenue growth

5.7%

(5.5%)

(2.3%)

Gross margin

62.8%

62.8%

62.9%

Receivables growth

15.8%

(7.9%)

(1.3%)

Shares outstanding

483.2 million

436.8 million

439.4 million

Source: Capital IQ, a division of Standard & Poor's.

Sometimes, the numbers sell themselves. Not this time. This time, we've got a confusing mishmash. Let's review:

  • Net income is down less than it was last year but growth has yet to return, and growth is what we're looking for.
  • Making matters worse is receivables. They're up mightily over the past year after two years of running negative.
  • If there's good news here, it's that gross margin has remained steady throughout.
  • Shares outstanding are up significantly in what appears to be a move to shore up the balance sheet ahead of acquisitions. More recently, Windstream announced a plan to issue $500 million worth of new notes to help fund the purchase of regional carrier Q-Comm.

Competitor and peer checkup

Competitor

Normalized Net Income Growth (3 yrs.)

8x8 (Nasdaq: EGHT)

NM

AT&T

11.6%

Sprint Nextel (NYSE: S)

NM

United States Cellular (NYSE: USM)

(7.5%)

Verizon (NYSE: VZ)

5.1%

Windstream

(8.6%)

Sources: Capital IQ. Data current as of Sept. 18. NM = not material.

There isn't much to like about this table. Not only is Windstream underperforming in terms of net income, but its 7.8% yield isn't much better than what AT&T (5.9%) and Verizon (6%) yield at current prices.

It's also difficult to discern where Windstream gets its competitive advantage. Perhaps from a lack of regional competition? Either way, the company's massive debt load is going to require years or even decades of servicing, and that could be a drag on growth.

Grade: Unsustainable
In many ways, telecom is a rotten business that's being disrupted by Voice-over-IP (VoIP) services such as Skype, Vonage, and 8x8. Windstream faces this threat as much as its larger peers do, but without the benefit of a sturdy balance sheet.

Now it's your turn to weigh in. Do you like Windstream at these levels? Would you make it one of our 11 o'clock stocks? Let the debate begin in the comments box below, and when you're done, click here to get today's 11 o'clock portfolio pick.

You can also ask Tim to evaluate a favorite growth story by sending him an email, or replying to him on Twitter.