Charter Communications shares fell by -1.5% during the day's afternoon session, and are now trading at a price of $378.15. 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.
A Very Low P/E Ratio but Trades Above Its Graham Number:
Charter Communications, Inc. operates as a broadband connectivity and cable operator company serving residential and commercial customers in the United States. The company belongs to the Telecommunications sector, which has an average price to earnings (P/E) ratio of 23.78 and an average price to book (P/B) ratio of 3.46. In contrast, Charter Communications has a trailing 12 month P/E ratio of 12.3 and a P/B ratio of 5.04.
P/E rations can be placed into context by dividing them by the firm's expected 5-year EPS growth rate, which gives us its Price to Earnings Growth (PEG) ratio. Charter Communications's PEG ratio is 1.12, which tells us the company is fairly valued in terms of growth. PEG ratios under 1 are considered an indicator of undervalued growth, but we need to keep in mind that many successful companies with excellent share performance have maintained much higher PEG ratios.
As always, a quantitative approach to a stock should be supplemented with a look at qualitative factors, such as the competence of its management team, quality of its corporate culture, and the wide variety of social and economic factors that can impact the success of its product.
Growing Revenues With Increasing Reinvestment in the Business:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $43,634 | $45,764 | $48,097 | $51,682 | $54,022 | $54,570 |
| Revenue Growth | n/a | 4.88% | 5.1% | 7.45% | 4.53% | 1.01% |
| Operating Margins | 12% | 14% | 17% | 20% | 22% | 23% |
| Net Margins | 3% | 4% | 8% | 10% | 11% | 10% |
| Net Income (MM) | $1,506 | $1,992 | $3,676 | $5,320 | $5,849 | $5,417 |
| Net Interest Expense (MM) | -$77 | -$135 | -$31 | -$101 | $56 | -$213 |
| Depreciation & Amort. (MM) | $10,318 | $9,926 | $9,704 | $9,345 | $8,903 | $8,700 |
| Earnings Per Share | $5.22 | $7.45 | $15.4 | $24.47 | $30.74 | $30.61 |
| Free Cash Flow (MM) | $2,642 | $4,553 | $7,147 | $8,604 | $5,549 | $3,186 |
| Capital Expenditures (MM) | $9,125 | $7,195 | $7,415 | $7,635 | $9,376 | $11,179 |
| Current Ratio | 0.23 | 0.52 | 0.4 | 0.29 | 0.33 | 0.33 |
| Total Debt (MM) | $72,827 | $79,078 | $82,752 | $91,561 | $97,603 | $97,799 |
| Net Debt / EBITDA | 4.65 | 4.6 | 4.51 | 4.58 | 4.65 | 4.62 |
