Is Clearwire's Stock Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Clearwire (UNKNOWN: CLWR.DL  ) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Clearwire's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Clearwire's key statistics:

CLWR Total Return Price Chart

Source: CLWR Total Return Price data by YCharts.

Passing Criteria

3-Year* Change 

Grade

Revenue growth > 30%

418.8%

Pass

Improving profit margin

70%

Pass

Free cash flow growth > Net income growth

70.4% vs. (123.8%)

Pass

Improving EPS

20.1%

Pass

Stock growth (+ 15%) < EPS growth

(51.8%) vs. 20.1%

Pass

Source: YCharts. * Period begins at end of Q4 2009.

CLWR Return on Equity Chart

Source: CLWR Return on Equity data by YCharts.

Passing Criteria

3-Year* Change

Grade

Improving return on equity

(488.9%)

Fail

Declining debt to equity

549.9%

Fail

Source: YCharts. * Period begins at end of Q4 2009.

How we got here and where we're going
Clearwire appears to be heading in the right direction, with five out of seven passing grades -- but the debt-laden company undermines itself with the sheer rising bulk of its debt relative to everything else. This has been a long-term problem for Clearwire, and investors haven't seen much reason to get excited, in spite of movement from unprofitable to slightly less unprofitable. Will Clearwire ever reward investors with green ink? Let's dig a little deeper.

Today's big news is the proposed merger between DISH Network (NASDAQ: DISH  ) and Sprint (NYSE: S  ) , which has long been Clearwire's primary lifeline. As recently as last week, we saw some speculation that DISH might back away from the Sprint-Clearwire pairing in its quest for spectrum, only to be surprised this morning by a $25.5 billion merger proposal between the telecom and the TV services provider.

At the moment, Clearwire has a $3.30-per-share offer on the table from DISH, and let's face it -- Clearwire probably isn't going to get a better deal than that, given its massive debts and inability to turn a profit. Clearwire's hand may have been tipped with the DISH-Sprint offer, and we should probably expect a response in the near future.

If Clearwire rejects the buyout, who else will come to its rescue? The new company would already own a controlling interest (as Sprint currently holds 52% of Clearwire), discouraging other attempts to buy it out. Also standing in the way of greater shareholder returns is the revelation that a number of Clearwire executives stand to gain handsomely in the event of a Sprint buyout (offered on weak terms of $2.97 per share) -- and will gain regardless, but at a slower and less convenient rate. The insulting terms and evident corporate payoff by big daddy Sprint have caused a bit of a shareholder revolt. Where will that lead if and/or when DISH and Sprint become... DINT? Sprish? I'm sure they'll come up with a better name.

Clearwire can't afford to be left out in the cold, and Sprint has no reason to abandon its prime spectrum provider, but the battle between various shareholder camps is likely to heat up if this new merger approaches completion. Legal battles might even undermine heavily indebted Clearwire's ability to secure financing in the near future, which could be catastrophic. Clearwire shareholders had better hope that DISH is more interested in a fair deal than Sprint has been so far.

Putting the pieces together
Today, Clearwire has some of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

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  • Report this Comment On April 16, 2013, at 12:00 PM, ddeleo wrote:

    Isn't it possible that if DISH buys Sprint, Sprint won't have the money to buy Clearwire. Thus leaving Clearwire fairly independent in the market. The difference being now DISH is sending its business also through the Clearwire network as will Sprint is too. Both now dependent on Clearwire infrastrucure. Both paying Clearwire usuage fees. And with DISH being primarily content/movies, which eats up bandwidth, that would be a lot of usuage fees.

    And they all live happily ever after.

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