In search of millennial melt-ups: Sprint

"Hey Jerome, enough with the rate hikes."

Last week we reviewed a couple of “millennial melt-up” stocks. We’re continuing today with a name many younger adults likely know well: Sprint (S).

Remember, the goal is to find stocks trading for less than $10. They need to be easily recognizable for investors who don’t know a ton of companies. And, they need to be turnaround stories that with an underappreciated business.

Mobile-phone carrier S could fit the bill for several reasons. Of all the companies on our list, it’s the cheapest by various metrics. S trades for less than book value, while its enterprise value is less than 5 times EBITDA. Both of those are much lower than peers like T-Mobile (TMUS) or Verizon Communications (VZ). (Enterprise value is market capitalization plus net debt, the truest measure of a company’s value. EBITDA is a form of earnings that excludes depreciation and is closely watched for telecoms.)

The business has also shown signs of improvement recently. S had its biggest subscriber gain in five years in the 12-month period ended in March. Customer attrition, or churn, has also fallen as cost cuts boost profits.

As many readers likely know, S was going to be acquired by TMUS. Then it got crushed as regulators sharply opposed the merger.

That may create an interesting opportunity on a few fronts. First, it’s a case of all the bad news being “priced in.” Secondly, short sellers bet against the deal by pounding the stock lower. That could trigger a “squeeze” higher as they “cover” bearish positions. Finally, the TMUS combination may still occur as executives negotiate with government officials. (Under the terms published on April 29, each S share would be valued at about 0.1 TMUS share.)

So on one hand, S could appeal to some investors on its own merits. And, on the other, the takeover possibility remains as potentially bullish catalyst. Either way, incremental developments moving forward could be positive.

In conclusion this isn’t a trade recommendation and everyone needs to do their own homework. But there could be some value in S at current prices.

Sprint (S) chart with key moving averages
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David Russell is VP of Market Intelligence at TradeStation Group. Drawing on two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them apprised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.