Windstream Holdings' (NASDAQ:WIN) stock has been crushing the market lately. Shares in this telecom have gained 28% year to date while the S&P 500 (SNPINDEX:^GSPC) index rose less than 6%. And reinvesting Windstream's generous dividends widens the gap past 38%.

WIN Chart

WIN data by YCharts.

But Windtsream lost momentum over the last few months. Share prices have dwindled by 14% since the end of July, when the company announced a bold reorganization plan. With Windstream's third-quarter earnings announcement less than two weeks away, would this be a good time to buy shares of the communications networking specialist?

Source: Windstream.

The upside
The reorganization is a big deal. Windstream isn't just looking at a new way to partition its business operations, but a whole new way to manage and report the entire business.

If and when the new structure takes effect, Windstream will become two separate operations. Investors will be able to buy shares of a new Windstream real estate investment trust, or of Windstream's network sales and management operations.

In most cases, a REIT is nothing more than a road to lower tax bills. But Windstream is coming into this transformation from a different angle.

By carving networking assets out into a new entity, alongside $3 billion of Windstream's $8.7 billion long-term debt balance, the company adds transparency and flexibility. The REIT company can settle into a comfortable and familiar rhythm of low growth and large dividend payments, without disappointing investors with greater growth expectations. And the service business unloads much of its financial debt, giving itself more flexibility to explore new markets and services.

So this REIT-based split is a game changer, to the point that investors in other telecoms hope that their favorite companies might follow suit.

Windstream's stockholders loved the REIT announcement, but share prices have fallen as the excitement cooled. If you want in on this radical strategy before the final plans have been drawn up and approved, lower prices could serve as a great entry point.

The downside
On the downside, the benefits of Windstream's REIT transaction have been thoroughly priced into the stock. Even after that 14% pullback, shares trade for more than 30 time trailing earnings. That's on par with fellow rural and specialty telecom Frontier Communications (NASDAQ:FTR), but about three times the trailing P/Es of industry titans Verizon Communications (NYSE:VZ) or AT&T (NYSE:T).

WIN Normalized PE Ratio (TTM) Chart

WIN Normalized P/E Ratio (TTM) data by YCharts.

Buy Windstream stock today and you'll pay a large premium compared to AT&T or Verizon. The REIT move helps, but is it enough to justify these high prices?

Analyst firm Goldman Sachs doesn't think so. The old voice lines are becoming irrelevant faster than business services and broadband sales can pick up the slack, in Goldman's opinion. 

Explaining a sell rating on Windstream shares, Goldman analyst Brett Feldman said that "Valuation looks stretched," and that there's plenty of downside risk even when taking the REIT split into account.

The takeaway
I like the fresh thinking behind Windstream's REIT idea, but the upside seems fully priced into the stock. Investors who bought these shares at a 14% higher price will probably regret their purchases later on.

I'd recommend sitting on your hands until further notice, whether you're already invested in Windstream or on the sidelines. Neither a Windstream buyer nor a seller be, to borrow a thought from Hamlet.

Let's call it a hold rating, in familiar Wall Street terms.

Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days.

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