Is Sprint Corporation 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 Sprint Corporation (S) 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 Sprint'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 Sprint's key statistics:

S Total Return Price data by YCharts.

Source: YCharts. *Period begins at end of Q3 2010.

S Return on Equity (TTM) data by YCharts.

Source: YCharts. *Period begins at end of Q3 2010.

How we got here and where we're going
Things don't look good at all for Sprint -- the second-tier telecom company hasn't been able to earn a single pass out of seven possible passing grades. Its total return since the end of 2013's third quarter has been calculated from the company's investor relations site, as online resources only display returns from 2013 onward. Over the past few quarters, Sprint's sales growth has collapsed as customers flee its contracts and head to rival carriers. Persistent unprofitability has hurt Sprint in a variety of ways, particularly as the company continues to spend more on capital expenditures. Will Sprint be able to move past these weaknesses and rebound, or is the third-largest mobile carrier in the U.S. going to have investors hang up on it for good? Let's dig a little deeper to find out.

Sprint has been reportedly mulling a potential bid for wireless rival T-Mobile (TMUS 0.50%) in recent months, which could help it bolster its market position against the Big Two mobile carriers -- AT&T (T 0.37%) and Verizon (VZ 0.54%) -- in terms of spectrum portfolio and subscriber counts. Fool contributor Alex Dumortier notes that Softbank, which now owns an 80% interest in Sprint, is willing to pay more than $20 billion to acquire Deutsche Telekom's 67% stake in T-Mobile. However, the Federal Communications Commission may well reject the consolidation, as it will lead to even less competition in the mobile market. Deutsche Bank recently downgraded the telecom giant from buy to hold as a result of this merger uncertainty, which suggests a low level of Wall Street confidence in the deal.

On the other hand, Sprint should still reap substantial benefits from its Network Vision project, which will be completed this year. Network Vision is essentially the installation of three distinct 4G LTE network bands across the U.S. This would further boost an already weighty spectrum portfolio, which Sprint augmented last year with its acquisition of Clearwire in a deal worth $3.8 billion. A broader range of high-speed spectrum should be a major selling point in the company's effort to siphon customers away from AT&T and Verizon. That may not be enough given the current fierce competition from T-Mobile -- earlier this month, T-Mobile offered to pay early the termination fees for contracts as well as an instant credit of up to $300 for old smartphones, for customers willing to switch from AT&T, Verizon, and Sprint. AT&T isn't taking that lying down, and it recently promised to provide as much as $450 in credit to T-Mobile customers for switching to its own network. Subsequently, AT&T and T-Mobile have both added significant numbers of postpaid subscribers to their portfolio, which could pose humongous threats for Sprint's growth prospects if the price war continues.

AT&T also recently launched the Beats Music streaming service, which could siphon subscribers off of other mobile carriers if it offers a legitimately compelling advantage over some of the various streaming services already on the market. Fool contributor Adam Levy points out that AT&T will also provide steep discounts to its 100 million-plus subscribers, which will put it in head-to-head competition with Internet-radio service providers such as Pandora Media and Spotify, likely at lower price points.

Fool contributor Rich Smith points out that Sprint carries over $26 billion in net debt on its balance sheet, which is likely to become a fair bit larger in the event of a T-Mobile purchase. With no profits earned in the last seven years, the company has burnt through nearly $3 billion in cash over the trailing-12-month period. Moreover, Sprint's operational disadvantage comparative to larger rivals could push more postpaid subscribers toward AT&T and Verizon's superior network coverage.

Putting the pieces together
Today, Sprint has few 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.