Don't Buy Leap Wireless: The Stock Is Not Cheap

Leap Wireless (LEAP), a flat rate telecom carrier, has had a terrible year in terms of stock performance, losing more than one third of its stock value. The latest results posted by the company further confirm our previous stance on the stock. Even though the company had its first profitable quarter since 2007, it was largely due to a $130 million gain from spectrum sales. The company continues to bleed customers and almost all its key business metrics are deteriorating. We reiterate our previous stance because weak subscriber trends for the company are likely to continue and with cost per gross additions on the rise, its margins will stay under pressure.

Leap is trading at cheap valuations, as is reflected in its multiples. Almost all of its multiples are at a discount to those of its peers. However we do not consider the stock to be undervalued. It can be considered undervalued only if the company is able to expand its margins and bring customer growth. Read more