Whether you’re long or short on Sprint Corp (NYSE:S) stock, I gotta be honest, I just don’t get the attraction. There are, according to Finviz.com, 442 companies listed on a U.S. stock exchange with a market cap greater than $10 billion. One of them is Sprint stock, the fourth largest wireless provider in the U.S., which has been hard at work turning around its business.
As InvestorPlace contributor Dana Blankenhorn recently pointed out in an article about S stock, there seems to be a lot of angst over its true potential, both positive and negative, and a lot of it is coming from inside the halls of this very media institution.
Here’s a good one from InvestorPlace Feature Writer James Brumley:
“The 132% gain Sprint stock dished out over the course of the prior year was a complete shocker, considering the company was neck-deep in debt and was relatively impotent in terms of prepaid and postpaid subscriber growth for the bulk of 2015.”
Brumley goes on to point out all the things CEO Marcelo Claure supposedly has done since taking the top job in 2014 to fix what ails S, but most of it might have been nothing but smoke and mirrors.
InvestorPlace contributor Vince Martin, on the other hand, recently examined the pros and cons of Sprint buying T-Mobile US Inc (NASDAQ:TMUS). Martin suggested that a deal between the two companies could cost double, perhaps more, than the $32 billion (including the assumption of debt) Sprint looked to pay in 2014 before abandoning its bid for TMUS.
S stock is trading within 2% of its 52-week high simply because of M&A rumor and innuendo? What a strange world we live in.
Why Sprint Stock Is a Bad Choice
Now let me tell you why I think Sprint stock is a really dumb investment. Really dumb.
Softbank Group Corp (OTCMKTS:SFTBF) owns 83% of Sprint stock. In the summer, Softbank sold 4% of its 32% ownership interest in Alibaba Group Holding Ltd (NASDAQ:BABA), valued around $7.9 billion, to reduce its debt and inject additional cash into Sprint.
The last time I checked, Alibaba has a reasonably good future. You only sell a chunk of something that valuable if you really want to protect your 83%-owned investment.
I suppose the longs look at this move as an affirmation that S is worth saving and that Masayoshi Son, Softbank’s Chairman, and founder, will ultimately buy the remaining 17% interest in Sprint stock that he doesn’t already own and then merge it into TMUS.
Frankly, I have no idea what’s in the mind of Son, but anything’s possible I guess.
So, my first problem with Sprint stock regardless of its business deficiencies is that Sprint shareholders are at the mercy of Son who appears to change course frequently.
As I mentioned earlier, there are 441 possible choices to invest in other than Sprint whose market caps are greater than $10 billion. Why then would you choose to own S stock when there are so many other options available? Is the wireless business really that compelling that there are no alternatives worth considering?
That’s the first head scratcher.
The second goes hand in hand with the first.
Sprint and Softbank had $30.9 billion and $79.5 billion in net debt respectively as of September 30, 2016. That’s 94% of their combined market caps. By comparison, Verizon Communications Inc. (NYSE:VZ) has net debt of $96.3 billion which is 46% of its market cap; AT&T Inc. (NYSE:T) has net debt of $117.2 million which is 47% of its market cap.
Bottom Line on S Stock
I’m not suggesting that you should invest in either Verizon or AT&T, but why in god’s name would you invest in either Sprint stock or Softbank stock given their debt profiles? It’s like the blind leading the blind.
For my money, Sprint is a horrendously dumb investment and Softbank is not too far behind it.
If you’re smart, you’ll find yourself another hobby because this one’s going to cost you a whole lot of pain.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.