MetroPCS Hit a 52-Week Low: What's the 411 on This Stock?

Shares of MetroPCS Communications (NYSE: PCS  ) hit a 52-week low on Friday. Let's take a look at how it got there and whether cloudy skies remain in the forecast.

How it got there
MetroPCS, operator of the fifth-largest mobile network in the United States, is figuring out that life as a second-tier telecommunications company isn't as easy as it once thought. In its latest quarterly report, MetroPCS noted that wireless subscriber additions amounted to only 131,654 -- its lowest first-quarter total in years, despite a 60-basis-point drop in customer attrition rates. For MetroPCS shareholders, there are two main reasons for the weakness.

First, the company is having a very hard time in getting subscribers to upgrade to smartphones. Based on its latest quarterly report, only 6% of all subscribers are using its 4G LTE network. The company has had to take huge margin hits in the form of $30 mail-in rebates just to entice consumers to purchase smartphones. Even worse, the company's cost per gross addition ballooned to $235 in the latest quarter from $157 a year earlier, while average revenue per user -- an extremely important metric for wireless companies that helps determine margin growth -- ticked higher by a measly $0.14.

Second, it simply can't compete in a world of larger telecom companies. AT&T (NYSE: T  ) and Verizon (NYSE: VZ  ) have more spectrum and considerably larger budgets that just don't allow any room for a second-tier player like MetroPCS to steal market share. At one time, when cheap phones were all the rage, MetroPCS had a shot, but with the price of smartphones dropping dramatically as market saturation has spiked, MetroPCS' advantage went down the tubes.

Things are so bad that even a potential deal with Sprint Nextel (NYSE: S  ) , orchestrated by its CEO, Dan Hesse, was axed by the struggling Sprint's board of directors.

How it stacks up
Let's see how MetroPCS Communications stacks up to its peers.

PCS Chart

PCS data by YCharts.

As you can see, the past five years haven't been kind to wireless providers, but they've been especially harsh on MetroPCS and Sprint.



Price/Cash Flow

Forward P/E

Dividend Yield

MetroPCS Communications 0.8 2.3 7.6 0%
AT&T 1.8 5.6 12.8 5.3%
Verizon 3.1 3.7 14.4 4.9%
Sprint Nextel 0.6 1.9 N/M 0%

Source: Morningstar. Yields are projected. N/M = not meaningful.

The wireless sector in the U.S. has really become a two-horse race between AT&T and Verizon, which has pushed the other wireless providers to the brink. Over the past five years, not only has Sprint Nextel lost money every year, but its gross margin has worsened in each successive year. Perhaps the iPhone will help its ailing network, but only time will tell if that's the case. MetroPCS might appear cheap relative to the larger AT&T and Verizon, but at just a fraction of their size and with so few of its subscribers using smartphones, it's going to continue to bleed market share as it attempts to play catch-up.

What's next
Now for the real question: What's next for MetroPCS Communications? The answer really depends on whether MetroPCS can successfully coerce its customers to upgrade to smartphones at minimal costs, and if it can somehow gain a competitive edge on its peers. "How can it gain this advantage?" you may ask. Spectrum-rich Clearwire (Nasdaq: CLWR  ) is in need of cash to finance its 4G LTE build-out, so perhaps there's a deal to be had there?

Our very own CAPS community gives the company a four-star rating (out of five), with 92.4% of members expecting it to outperform. In true contrarian fashion, I've made a CAPScall of underperform on MetroPCS and am currently up 33 points on that call. I'm also not looking to close this pick anytime soon.

The reason I feel more pain is ahead relates to its lateness to the smartphone party. MetroPCS simply doesn't have the luxury of falling even further behind AT&T and Verizon in the wireless space. Worst of all, its costs associated with acquiring new customers continues to trend higher. MetroPCS is to the wireless market what Nokia is to the handset market: yesterday's news!

If you'd like the inside scoop on three more companies set to take advantage of the next technological revolution, click here and you'll get free access to our latest special report.

Craving more input on MetroPCS Communications? Start by adding it to your free and personalized watchlist. It's a free service from The Motley Fool to keep you up to date on the stocks you care about most.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

Motley Fool newsletter services have recommended buying shares of Nokia. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 08, 2012, at 10:59 PM, jhf678 wrote:

    Other carriers make their smartphones plan cheaper, too. For example, Simple Mobile is only $40/month unlimited 3G compare to MetroPCS $50/month. For this reason MetroPCS can`t compete. They need to make $35/month or even $30/month to compete. MetroPCS`s smartphones run out of battery very quickly. Simple Mobile allows you to bring in your own phone.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1881232, ~/Articles/ArticleHandler.aspx, 10/25/2016 8:13:58 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 10 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:00 PM
TMUS $51.19 Up +4.44 +9.50%
T-Mobile US CAPS Rating: ***
CLWR.DL $0.00 Down +0.00 +0.00%
Clearwire Corp CAPS Rating: **
S $6.92 Up +0.37 +5.65%
Sprint CAPS Rating: **
T $36.86 Down -0.63 -1.68%
AT and T CAPS Rating: ****
VZ $48.21 Up +0.01 +0.02%
Verizon Communicat… CAPS Rating: ****