How Low Will Leap Wireless Go?

Shares of Leap Wireless (Nasdaq: LEAP) hit a 52-week low recently. Let's take a look at how the company got there to find out whether cloudy skies remain on the horizon.

How it got here
Leap, along with fellow prepaid carrier MetroPCS (NYSE: PCS), has long lagged the big two in subscriber base, and that's reflected in their abysmal five-year performances. MetroPCS shareholders at least enjoyed a run-up from 2010 until the summer of 2011, unlike Leap shareholders, who have seen the beleaguered mobile carrier mosey steadily down a long hill for a long time:

LEAP Total Return Price data by YCharts.

It doesn't help that Leap hasn't been profitable since 2005, and its latest earnings report dived beneath analyst estimates in virtually every way, missing on top, bottom, middle, and probably sideways lines, to say nothing of anemic new subscriber growth. Investors have been given virtually nothing to look forward to, and many responded by fleeing for the exits.

What you need to know
Leap's prepaid service model hasn't been an advantage against AT&T (NYSE: T) and Verizon (NYSE: VZ), or even against Sprint (NYSE: S), despite that company's similar size disadvantage against the big two. As ample evidence has shown, consumers really want smartphones, and the postpaid model allows carriers more freedom to subsidize shiny new phone costs in exchange for costlier long-term contracts.

Source: Yahoo! Finance. NM = not material due to negative earnings.

It's been a rather abysmal period for everyone, except (comparatively, at least) MetroPCS. AT&T took a big hit from its failed T-Mobile acquisition, while Verizon's annual bottom line has been declining for some time. Sprint has added new subscribers thanks to an iPhone-bolstered product lineup, but that hasn't been enough to bring it back to the black. Still, it's hard to make the case for a company that's hemorrhaged cash virtually since inception when there are some sizable, unthreatened dividends elsewhere in the sector.

What's next?
Where does Leap go from here? That will depend on two things: whether or not it can ever become profitable, and whether or not its spectrum holdings could become buyout fodder for one of the big two carriers. Valued at several times Leap's market cap, a spectrum sale seems to represent Leap shareholders' last, best hope for real returns. The Motley Fool's CAPS community has given Leap a two-star rating, with 22% of commenters expecting the stock to continue its 52-week trend. Count me among them -- I made my own bearish CAPSCall a month ago, and I plan to hold onto it.

Interested in tracking this stock as it continues on its path? Add Leap to your Watchlist now for all the news we Fools can find, delivered to your inbox as it happens. If you'd rather keep your eye on the other four telecoms, you can add them to your free Watchlist by clicking here.