Read This to Understand SBA Communications Stock

We've been asking ourselves recently if the market has placed a fair valuation on SBA Communications. Let's dive into some of the fundamental values of this Large-Cap Real Estate company to determine if there might be an opportunity here for value-minded investors.

SBA Communications's Valuation Is in Line With Its Sector Averages:

SBA Communications Corporation is a leading independent owner and operator of wireless communications infrastructure including towers, buildings, rooftops, distributed antenna systems (DAS) and small cells. The company belongs to the Real Estate sector, which has an average price to earnings (P/E) ratio of 25.55. In contrast, SBA Communications has a trailing 12 month P/E ratio of 38.2 based on its earnings per share of $5.1.

There is an important limit on the usefulness of P/E ratios. Since the P/E ratio is the share price divided by earnings per share, the ratio is determined partially by market sentiment on the stock. Sometimes a negative sentiment translates to a lower market price and therefore a lower P/E ratio -- and there might be good reasons for this negative sentiment.

One of the main reasons not to blindly invest in a company with a low P/E ratio is that it might have low growth expectations. Low growth correlates with low stock performance, so it's useful to factor growth into the valuation process. One of the easiest ways to do this is to divide the company's P/E ratio by its expected growth rate, which results in the price to earnings growth, or PEG ratio.

When we do this for SBA Communications, we obtain a PEG ratio of 1.01, 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 companys with excellent share performance have maintained much higher PEG ratios.

As always, a quantitave 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.

Exceptional Profitability Overshadowed by Excessive Leverage:

2018 2019 2020 2021 2022 2023
Revenue (M) $1,866 $2,015 $2,083 $2,309 $2,633 $2,712
Operating Margins 28% 28% 30% 34% 35% 34%
Net Margins 3% 7% 1% 10% 18% 19%
Net Income (M) $47 $147 $24 $238 $461 $502
Net Interest Expense (M) $377 $387 $352 $361 $348 $397
Depreciation & Amort. (M) $269 $282 $287 $272 $274 $272
Diluted Shares (M) 117 115 113 111 109 109
Earnings Per Share $0.41 $1.28 $0.21 $2.14 $4.22 $4.61
EPS Growth n/a 212.2% -83.59% 919.05% 97.2% 9.24%
Avg. Price $156.98 $212.67 $281.97 $309.97 $325.88 $193.2
P/E Ratio 382.88 163.59 1281.68 142.84 76.32 41.64
Free Cash Flow (M) $701 $816 $997 $1,056 $1,071 $1,308
CAPEX (M) $150 $154 $129 $134 $214 $237
EV / EBITDA 35.69 40.1 46.02 43.49 39.95 28.12
Total Debt (M) $10,880 $10,857 $11,120 $12,327 $12,892 $12,967
Net Debt / EBITDA 13.2 12.42 11.74 11.34 10.63 10.67
Current Ratio 0.31 0.32 0.77 1.0 0.69 0.36

SBA Communications has growing revenues and increasing reinvestment in the business and strong operating margins with a stable trend. Additionally, the company's financial statements display exceptional EPS growth and generally positive cash flows. However, the firm suffers from not enough current assets to cover current liabilities because its current ratio is 0.36 and a highly leveraged balance sheet.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.