In This Article:
Comcast has gotten torched over the last six months - since November 2024, its stock price has dropped 22.2% to $33.90 per share. This may have investors wondering how to approach the situation.
Is now the time to buy Comcast, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think Comcast Will Underperform?
Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why CMCSA doesn't excite us and a stock we'd rather own.
1. Inability to Grow Domestic Broadband Customers Points to Weak Demand
Revenue growth can be broken down into changes in price and volume (for companies like Comcast, our preferred volume metric is domestic broadband customers). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Over the last two years, Comcast failed to grow its domestic broadband customers, which came in at 31.64 million in the latest quarter. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Comcast might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Comcast’s revenue to stall, close to its 1.4% annualized growth for the past two years. This projection is underwhelming and indicates its newer products and services will not lead to better top-line performance yet.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Comcast historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 8.8%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.
Final Judgment
We see the value of companies helping consumers, but in the case of Comcast, we’re out. After the recent drawdown, the stock trades at 7.8× forward price-to-earnings (or $33.90 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better investments elsewhere. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.