Gray Television has gotten torched over the last six months - since May 2024, its stock price has dropped 22.8% to $4.36 per share. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.

Is there a buying opportunity in Gray Television, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Even with the cheaper entry price, we're swiping left on Gray Television for now. Here are three reasons why there are better opportunities than GTN and a stock we'd rather own.

Why Is Gray Television Not Exciting?

Specializing in local media coverage, Gray Television (NYSE:GTN) is a broadcast company supplying digital media to various markets in the United States.

1. Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Gray Television grew its sales at a 13.1% compounded annual growth rate. Although this growth is solid on an absolute basis, it fell short of our benchmark for the consumer discretionary sector.

2. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Gray Television, its EPS declined by 12.7% annually over the last five years while its revenue grew by 13.1%. This tells us the company became less profitable on a per-share basis as it expanded.

3. High Debt Levels Increase Risk

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

Gray Television’s $5.99 billion of debt exceeds the $69 million of cash on its balance sheet. Furthermore, its 6x net-debt-to-EBITDA ratio (based on its EBITDA of $943 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Gray Television could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Gray Television can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.