It's been a great morning session for Comcast investors, who saw their shares rise 1.3% to a price of $39.49 per share. At these higher prices, is the company still fairly valued? If you are thinking about investing, make sure to check the company's fundamentals before making a decision.
The Market May Be Undervaluing Comcast's Assets and Equity:
Comcast Corporation operates as a media and technology company worldwide. 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, Comcast has a trailing 12 month P/E ratio of 10.6 and a P/B ratio of 1.9.
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. Comcast's PEG ratio is 1.02, 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 but Not Enough Current Assets to Cover Current Liabilities:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $94,507 | $108,942 | $103,564 | $116,385 | $121,427 | $121,572 |
| Operating Margins | 20% | 19% | 17% | 18% | 12% | 19% |
| Net Margins | 12% | 12% | 10% | 12% | 4% | 13% |
| Net Income (M) | $11,731 | $13,057 | $10,534 | $14,159 | $5,370 | $15,388 |
| Net Interest Expense (M) | $3,542 | $4,567 | $4,588 | $4,281 | $3,896 | $4,087 |
| Depreciation & Amort. (M) | $8,281 | $8,663 | $8,320 | $8,628 | $8,724 | $8,854 |
| Diluted Shares (M) | 4,640 | 4,610 | 4,624 | 4,654 | 4,430 | 4,148 |
| Earnings Per Share | $2.53 | $2.83 | $2.28 | $3.04 | $1.21 | $3.71 |
| EPS Growth | n/a | 11.86% | -19.43% | 33.33% | -60.2% | 206.61% |
| Avg. Price | $31.83 | $38.38 | $39.87 | $51.89 | $43.51 | $39.42 |
| Free Cash Flow (M) | $14,523 | $15,744 | $15,558 | $19,972 | $15,787 | $16,259 |
| CAPEX (M) | $9,774 | $9,953 | $9,179 | $9,174 | $10,626 | $12,242 |
| EV / EBITDA | 5267895.95 | 5854138.96 | 10.64 | 10.91 | 12.42 | 7.99 |
| Total Debt (M) | $111,743 | $102,217 | $103,760 | $94,850 | $94,811 | $97,090 |
| Net Debt / EBITDA | 3.95 | 3.25 | 3.56 | 2.93 | 3.96 | 2.83 |
| Current Ratio | 0.79 | 0.84 | 0.93 | 0.85 | 0.78 | 0.6 |
Comcast has growing revenues and increasing reinvestment in the business, positive EPS growth, and generally positive cash flows. However, the firm has not enough current assets to cover current liabilities because its current ratio is 0.6. Finally, we note that Comcast has decent operating margins with a stable trend and significant leverage levels.
