Sprint Is Soaring so Take Profits Now
Shares of Sprint (S) - Get Reportskyrocketed almost 30% Monday on more than eight times its average volume after the wireless network company reported second-quarter subscriber totals showing its aggressive promotions aimed at undercutting its bigger rivals are having a positive impact.
But investors would be better served to lock in some profits now and wait for the stock to pull back. True, the 173,000 postpaid net subscribers adds were impressive. The 30% one-day spike in its share price, however, which puts Sprint at almost two-year highs, was overdone. Take a look at the chart, courtesy of TradingView.
Sprint shares closed Monday at $5.90, surging 27.7% from the Friday's close of $4.62. The stock is now up 63% year to date, including a 43% surge just in the past 30 days. This compares to a 6% rise in the S&P 500 (SPX) index and a 20% year-to-date rise in iShares Dow Jones US Telecom ETF (IYZ) - Get Report , the exchange-traded fund that tracks the industry.
Fundamentally, there's no denying Sprint is drastically improved from where it was two years ago. But the company is still losing money. During the quarter it reported a wider loss of $302 million. Technically, while the chart looks positive, the bullish momentum won't be sustained. It's encouraging that the stock closed at the high of the day, just 6 cents below the session high. It appears, however, that the surge was more of a function of short sellers getting caught with their pants down.
Heading into the quarter, Sprint had 168 million shares sold short, representing some 24% of its float. This compares to rivals Verizon (VZ) - Get Report and AT&T (T) - Get Report , which both had about 1% of their float in the hands of short-sellers. In other words, Monday's rise in Sprint's share price was likely an anomaly and the stock can give up half, if not, all of those gains just as quickly as it made them.
This is because the stock in not on the hands of investors who believe in an imminent recovery in the company. In that vein, investors who do own the shares should thank the shorts, take some profits off the table, and wait for a pullback to resistance at around $5 per share, or about 15% lower, before buying back in.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.