AT&T shares fell by -1.8% during the day's evening session, and are now trading at a price of $14.09. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
AT&T Has an Attractive P/B Ratio but a Worrisome P/E Ratio:
AT&T Inc. provides telecommunications and technology services worldwide. The company belongs to the Telecommunications sector, which has an average price to earnings (P/E) ratio of 18.85 and an average price to book (P/B) ratio of 3.12. In contrast, AT&T has a trailing 12 month P/E ratio of -12.0 and a P/B ratio of 0.99.
When we divide AT&T's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -11.63. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
The Company May Be Profitable, but Its Balance Sheet Is Highly Leveraged:
| 2020-02-20 | 2021-02-25 | 2022-02-16 | 2023-02-13 | |
|---|---|---|---|---|
| Revenue (MM) | $181,193 | $143,050 | $134,038 | $120,741 |
| Gross Margins | 53.6% | 54.1% | 54.9% | 57.9% |
| Operating Margins | 16.2% | 16.8% | 19.5% | 19.0% |
| Net Margins | 7.67% | -3.62% | 14.98% | -7.06% |
| Net Income (MM) | $13,903 | -$5,176 | $20,081 | -$8,524 |
| Net Interest Expense (MM) | -$8,422 | -$7,727 | -$6,716 | -$6,108 |
| Depreciation & Amort. (MM) | -$28,217 | -$22,523 | -$17,852 | -$18,021 |
| Earnings Per Share | $1.89 | -$0.75 | $2.76 | -$1.17 |
| EPS Growth | n/a | -139.68% | 468.0% | -142.39% |
| Diluted Shares (MM) | 7,348 | 7,183 | 7,204 | 7,149 |
| Free Cash Flow (MM) | $63,619 | $49,702 | $45,579 | $55,239 |
| Capital Expenditures (MM) | -$14,951 | -$12,218 | -$8,409 | -$19,427 |
| Net Current Assets (MM) | -$294,974 | -$294,513 | -$196,999 | -$263,288 |
| Current Ratio | 0.79 | 0.82 | 1.61 | 0.59 |
| Long Term Debt (MM) | $151,309 | $153,775 | $151,011 | $128,423 |
| Net Debt / EBITDA | 3.21 | 6.17 | 3.98 | 11.18 |
AT&T has slimmer gross margins than its peers, declining EPS growth, and a highly leveraged balance sheet. On the other hand, the company benefits from a steady stream of strong cash flows and average operating margins with a stable trend. Furthermore, AT&T has declining revenues and increasing reinvestment in the business.
