Sprint Corporation (NYSE:S) just hit a new 52-week low, which is a surprise to no one.
Sprint has seen much better days. Shares of Sprint stock are down about 50% in 2014, and down more than 75% from 2008 highs.
It’s no secret why, as the company has been running an unprofitable operation that is significantly smaller than telecom giants AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) and operates an aging network that is going to be hard to upgrade and expand when the company has such an ugly balance sheet.
Of course, that hasn’t stopped Sprint Corporation from being popular with day traders as it has fallen into single-digit share price.
But a word of warning: Remember that not every cheap stock is a bargain. After all, RadioShack (NYSE:RSH) was “cheap” at $7 per share in 2012 … and now RSH stock trades at around 60 cents.
Sprint stock may be popular stock for day traders thanks to its low share price, but Sprint is cheap for a reason — and nobody in their right mind should try catching this falling knife.
Why Sprint Stock Is Sunk
There was hope for Sprint as the No. 3 wireless carrier behind AT&T and Verizon after it made a bid to acquire T-Mobile (NYSE:TMUS). But now that the plan has been squashed, things are about to get very painful for Sprint because it lacks the scale of VZ and AT&T, and T-Mobile continues to grow aggressively on its low-cost approach to the market.
Sprint admittedly has more than $6 billion in cash in the bank, but cash flow was in the red last year and the company has been hard-pressed to turn a profit since before the Great Recession. So it’s difficult to tell how much financial flexibility Sprint has to invest in growth. Furthermore, a credit rating of BB- puts Sprint bonds in junk territory — and with more than $32 billion in debt on a market cap of about $22 billion, things are getting a bit risky in the debt department for Sprint right now.
Throw in downward momentum in subscribers, with Sprint losing approximately 633,000 subscribers to start the year, and given that Sprint is struggling to make the recent acquisition of Clearwire pay off, it seems like management is going to be putting out fires instead of worrying about the growth and evolution Wall Street will demand.
Expect Sprint to continue to fall behind its peers in the wireless market, and steer clear of this telecom now that it has lost out in its T-Mobile bid.
And expect Sprint stock to continue to circle the drain as a result.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP.