Is NII Holdings 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 NII Holdings (NASDAQ: NIHD) fit the bill? Let's 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 NII'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 look at NII's key statistics:

NIHD Total Return Price data by YCharts

Source: YCharts.
*Period begins at end of Q2 2010.

NIHD Return on Equity data by YCharts

Source: YCharts.
*Period begins at end of Q2 2010. 

How we got here and where we're going
NII fell on its face today, as it earned only one out of seven possible passing grades, and even that lone pass was just a technicality. Weak revenue growth and falling margins have impeded NII's success. Will NII be able to move past these weaknesses and rebound, or are investors in the wireless services provider going to find themselves with no signal soon? Let's dig a little deeper to find out.

CEO Steve Shindler blames the shutdown of Sprint's iDEN network, and a slowdown in its subscriber growth and Mexican business for the most recent quarter's underwhelming revenue growth. Early this year, NII also planned to raise an additional $400 million via debt offering to compete with Latin American telecom leaders such as America Movil (AMX 2.87%) and Telefonica (TEF 1.19%), but the debt raise couldn't rekindle investors' faith in the stock.

Fool contributor Steve Symington notes that NII has agreed to sell 2,790 towers in Brazil, and 1,666 towers in Mexico, to American Towers (AMT 0.17%), for a total of $811 million -- that's about $180,000 per tower. NII subsidiaries Nextel Brazil and Nextel Mexico will lease the mobile communication towers back from American Towers after the deal closes. After this transaction, American Towers will have more than 60,000 communications sites worldwide in its portfolio. On the other hand, the proceeds from this transaction will help NII support its continued investments in Nextel's next-generation network deployments across Brazil and Mexico.

NII also plans to sell its stake in Nextel Peru to Empresa Nacional de Telecomunicaciones S.A. for about $400 million. Fool contributor Rich Duprey points out that Brazil and Mexico combined for 83% of NII's fiscal 2012 revenue, while Peru accounted for less than 6%. NII rival Telefonica has already deployed 3G and 4G services in many Latin American markets (including Brazil), while America Movil is expected to roll out 4G LTE service in Mexico this year. NII is facing some major competitive headwinds in its core American mobile communication markets, and even after selling off a big chunk of its assets, the company still trails its larger rivals by a large margin in terms of deployable cash. NII had $1.5 billion on hand at last count, while America Movil reported roughly $2.4 billion, and Telefonica has over $10 billion in the bank.

Putting the pieces together
Today, NII Holdings 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.