Does Sprint Still Have an Edge?

Sprint's stock has soared more than three-fold since 2011 due to a fundamental edge it possessed, but is that edge still there?

Mar 24, 2014 at 1:00PM

Since 2011, Sprint (NYSE:S) has climbed from a price of just above $2 to its current $8.75 a share. The company has thrived by striking a deal with Apple (NASDAQ:AAPL) for the iPhone and offering an unlimited service, giving it an edge over the likes of T-Mobile (NASDAQ:TMUS) and AT&T (NYSE:T). But after such large gains, and with a changing landscape, does Sprint still have an investment edge?

A look back at history
If we look back at Sprint in 2011, it had falling subscribers, declining revenues, and a rising debt-to-assets ratio. Essentially, it was more primed for bankruptcy than a turnaround.

Also, the company had no answer for the iPhone, a product that, at the time, was nearly doubling in year-over-year unit sales as the hottest phone in the country. But with a $20 billion deal to carry Apple products, it began to see a boost in subscribers.

It also had an advantage with its service. Apple iPhone users are known to consume more data, and Sprint was the only carrier that offered an unlimited voice and data plan. Combined, the outcome made for massive stock gains and eventually a nearly 80% stake by telecom giant Softbank.

Has Sprint lost its edge?
Here's the kicker: Sprint may be losing its edge. Both AT&T and Verizon have since released more attractive plans, including bundles, and pay-as-you-go programs. This has posed as a major threat, and more importantly, the iPhone is no longer providing the spark it once did.

In Apple's last quarter, iPhone unit sales increased just 6.7% globally, far short of the near 100% growth it was producing in the year before Sprint's deal. While more than 55% of Apple's revenue still comes from the iPhone, the company has now shifted much of its focus away from the saturated Americas, and into China, where it owns a much smaller market share in smartphones, at less than 10%.

Apple's initiatives in China, including its deal with China Mobile, mean that much or most of its year-over-year growth comes outside North America. This means that the roughly 2 million added subscribers Sprint has added since the Apple deal may have reached a peak.

The one wild card
With service providers offering more competitive packages and the iPhone no longer the growth driver it had been, Sprint really has lost its investment edge.

The one wildcard might be T-Mobile.

It's well-documented that Sprint and Softbank are trying vigorously to acquire T-Mobile, as its no-contract plans and "un-carrier 4.0" initiative to attract the competition's subscribers have given the company a recent boost in subs.

Also, T-Mobile earns an industry-low $52 in average revenue per subscriber, which is one reason AT&T tried so hard to acquire it a couple years back. Sprint earns $63 per post-paid subscriber, which is high, and has very little room for growth.

While we can clearly see why Sprint would want to acquire T-Mobile -- T-Mobile's download speeds are also double that of Sprint -- the bigger question is whether regulators like the FCC will ever allow it. The FCC already shot down AT&T's attempted acquisition of T-Mobile, citing that it would hurt the free market. A Sprint and T-Mobile merger would combine the third- and fourth-largest nationwide carriers, but in addition, it would put two valuable spectrums and networks in the hands of a foreign company. A T-Mobile acquisition is a long shot, but important for Sprint's days of stock gains to continue.

Final thoughts
In spite of Sprint's large gains, the company still operates with more than $30 billion in debt, and a near breakeven operating margin of 0.26%. T-Mobile would improve the fundamentals of Sprint, as a company with positive operating margins of 4.7% and double-digit revenue growth.

The problem is that Sprint is unlikely to acquire T-Mobile, and given large losses within the telecom space, there are far better investment options. AT&T trades at just 1.3 times sales and 12 times next year's earnings with a dividend yield of 5.6%. In contrast, Sprint trades at one times sales, with no dividend. The slight premium for well-established peers -- and the problems that Sprint faces -- provides reason to be wary.

Simply put: Sprint has lost its edge, and it's unknown if the T-Mobile catalyst can become a reality.

Looking for a winner in mobile?
Want to get in on the smartphone phenomenon? Truth be told, one company sits at the crossroads of smartphone technology as we know it. It's not your typical household name, either. In fact, you've probably never even heard of it! But it stands to reap massive profits NO MATTER WHO ultimately wins the smartphone war. To find out what it is, click here to access the "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."

Brian Nichols owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers