Is Sprint Stock Undervalued?

With shares of Sprint (NYSE:S) trading around $5, is S an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Sprint offers wireless and landline communications products and services to individuals and businesses in the United States. Through its two segments, Wireless and Wireless, it offers voice and data transmission services to subscribers in all 50 states, Puerto Rico, and the United States Virgin Islands under the Sprint corporate brand, which includes its retail brands of Sprint, Nextel, Boost Mobile, Virgin Mobile, and Assurance Wireless. An increasing share of the population is opting for these communications products and services, fueling profits for Sprint. A recent bidding war with Dish Network (NASDAQ:DISH) for Clearwire (NASDAQ:CLWR) has ended, and left Sprint with the opportunity to take over the rest of the company that will lead to further expansion.

Sprint posted earnings on Tuesday morning, with the company reporting net losses of $1.6 billion, up from $1.4 billion a year earlier. The company was hurt by the $623 million it cost to close Nextel, which also cost Sprint 1.05 million subscribers. However, revenue increased to its highest point ever of $7.2 billion, and the company has big plans for the cash it’s getting from SoftBank and wireless holdings from Clearwire.

T = Technicals on the Stock Chart are Weak

Sprint stock has struggled a bit in the last year. The stock is now trading near lows for the year, where it may need to spend some time before moving higher. Analyzing the price trend and its strength can be done using key simple moving averages.

What are the key moving averages? They are the 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Sprint is trading below its key averages, which signals neutral to bearish price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Sprint options may help determine if investors are bullish, neutral, or bearish.

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, compared to the last 30 and 90 trading days.

As of today, there is average demand from call buyers or sellers, and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts, and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates, and what that means for Sprint’s stock.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. In addition, the last four quarterly earnings announcement reactions can help gauge investor sentiment on Sprint’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Sprint look like, and more importantly, how did the markets like these numbers?

Sprint has seen mixed earnings and rising revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about Sprint’s recent earnings announcements.

* As of this writing

P = Excellent Relative Performance Versus Peers and Sector

How has Sprint stock done relative to its peers, AT&T (NYSE:T), Verizon (NYSE:VZ), T-Mobile (NYSE:TMUS), and sector?

Sprint has been a relative performance leader, year-to-date.

Conclusion

Sprint provides communications services and technology to a wide variety of consumers and companies in the United States and its territories. A recent earnings announcement has investors relatively pleased with the company. The stock is trading near lows for the year, so it may need to spend some time here before heading higher. Over the last four quarters, investors in the company have had mixed feelings, as earnings have been mixed, while revenue figures have been rising. Relative to its peers and sector, Sprint has been a year-to-date performance leader. WAIT AND SEE what Sprint does this coming quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.