Charter’s 17.9% return over the past six months has outpaced the S&P 500 by 12.8%, and its stock price has climbed to $383.08 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy Charter, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Despite the momentum, we're sitting this one out for now. Here are three reasons why CHTR doesn't excite us and a stock we'd rather own.
Why Do We Think Charter Will Underperform?
Operating as Spectrum, Charter (NASDAQ:CHTR) is a leading telecommunications company offering cable television, high-speed internet, and voice services across the United States.
1. Inability to Grow Internet Subscribers Points to Weak Demand
Revenue growth can be broken down into changes in price and volume (for companies like Charter, our preferred volume metric is internet subscribers). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Over the last two years, Charter failed to grow its internet subscribers, which came in at 30.08 million in the latest quarter. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Charter might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Charter’s revenue to stall, close to its flat sales for the past two years. This projection is underwhelming and suggests its newer products and services will not lead to better top-line performance yet.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Charter historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.5%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.
Final Judgment
Charter falls short of our quality standards. With its shares outperforming the market lately, the stock trades at 10.8× forward price-to-earnings (or $383.08 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are more exciting stocks to buy at the moment. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.
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