With over 1.4 million iPhones sold in the last quarter, Sprint (NYSE:S) is still viewed with some skepticism. From its platform service to network vision sites, Sprint is involved in numerous segments of the telecommunications industry. However, it has faced turmoil in terms of shrinking wireless subscribers. Just a few weeks ago in late July, the company reported average revenue per user of $64.20, better than the $63.76 expected by Deutsche Bank. At the same time, Sprint announced that wireless net subscriber losses were more than 2 million. Also, its operating loss increased by 39%, while its net loss increased by 16%. The report exacerbated the negativity surrounding the stock.
Delving into fundamentals, Sprint's price to sales and profit margins are severely undervalued in comparison to competitors in the telecommunications business. The company's price-to-sales ratio is a meek 0.59, compared with 1.43 for AT&T (NYSE:T) and 1.17 for Verizon (NYSE:VZ). The profit margin of Verizon at 1.32% and AT&T at 5.73 is higher than Sprint's at -12.22%. Even the industry profit margin of 5.0% and the sector's at 9.0% are higher than Sprint's. The company's return on assets at 1.12% is valued lower than 2.82% for AT&T and 4.40% for Verizon. Sprint's operating margin is 2.50%, lower than 9.52% for AT&T and 13.42% for Verizon. In addition, Sprint's EPS growth estimate for the next five years at 5% is valued lower than AT&T at 6.46% and Verizon at 10.46%.
However, investors should not ignore some other important information. At 60.94%, Sprint has a higher return on equity than the 16.42% for the sector and 8.7% for the industry. It is also higher than 7.98% for AT&T and 13.99% for Verizon. Additionally, at cash per share of 2.23, Sprint has more value than AT&T (0.88) and Verizon (0.84).
Investors are also wise to note trends in Sprint's last quarterly report. The company's wireless revenues hit $7.2 billion, a record mark for the company. The platform service had postpaid net additions for the 13th consecutive quarter. To date, more than 20,000 network vision sites are on air compared to more than 13,500 reported in the first quarter results. As part of its network vision, Sprint has launched 4G LTE in 151 cities, including Los Angeles, Dallas, Atlanta, Miami, and Boston. The company intends to provide 200 million people with LTE by the end of 2013.
Insider trading and hedge fund managers
It is possible that these positive developments account for why hedge fund managers and insiders have continued to show interest in the company. By March, 67 hedge fund managers are invested in the company. The list includes Leon Cooperman, Paul Glazer, and John Paulson.
Needless to say, investors who mimic the actions of insiders have the possibility of achieving good returns. Though insiders have made 21 sales since 2009, they all retained substantial amounts of their investment. The most bullish of the insiders include Steven Elfman, Robert Johnson, and Leonard Alves. However, company insiders have also made 23 purchases. They include Daniel Hesse, Joseph Euteneuer, and Robert Brust.
Not surprisingly, Deutsche Bank recently upgraded the stock and raised its price target to $8 a share from $4.25 per share, citing the company's advantage in spectrum. Though Argus downgraded the stock from a buy rating, it urged investors to buy it. Other analysts say that Sprint made some progress in the second quarter.
It is also worth considering the state of Sprint's surrounding macroeconomic environment. The communications industry is expected to see a compound annual growth rate of 5.2 percent over the next few years. Innovative products such as tablets and smartphones will continue to drive the growth of the sector. Additionally, price declines will make the products more affordable.
After considering these issues, it seems an imbalance of negative opinion surrounds the stock. Even if Sprint's revenue missed analyst estimates, it is because Sprint is reorganizing. Right now, the stock is trading at levels which greatly discount the strength of Sprint's core business. The company is one of the cheapest stocks available, and in the long run, it is poised for success.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.