Like usual, Comcast (NASDAQ:CMCSA) stock delivered an impressive quarterly report, producing both an earnings beat and a continuing path to profit growth amid increased competition.
However, CMCSA barely reacted to the news. It also fell in subsequent days along with the market. Although Comcast stock offers a cheap valuation and double-digit growth, the equity is poorly positioned to deliver shareholder return at current levels.
Comcast Seems Solid
In many respects, investors should congratulate the management of Comcast. Despite Netflix (NASDAQ:NFLX) disrupting its cable TV industry, Comcast has thrived through internet service and becoming a content provider of its own. While TV subscriptions continue to fall in line with the cord-cutting trend, the company continues to add internet customers. Moreover, as the owner of NBC as well as Universal Pictures and its theme parks, it becomes a viable competitor to Disney (NYSE:DIS).
That said, our own Josh Enomoto pointed out that Comcast stock “needs some new catalysts.” He could not be more right.
As Enomoto stated, Comcast gave investors a solid yet lackluster earnings report in July. Although the company missed on revenue, it beat Wall Street estimates and added more subscribers than analysts had expected. The company also maintained its quarterly dividend payment of 21 cents per share. This payout has risen for eight straight years and pays a yield of 2%.
But CMCSA Stock Lacks an Obvious Catalyst
A 2% yield amounts to Comcast stock slightly beating the S&P 500 average. Like its dividend, I expect the company to continue growing, but not on an impressive scale. The company needed to replace its lagging pay-TV content with a streaming service and is doing so. Moreover, it will have to compete not only with Netflix and Disney, but also Amazon’s (NASDAQ:AMZN) Prime Video, Apple’s (NASDAQ:AAPL) Apple TV service and several others.
Even if Comcast’s streaming service succeeds, it will not command the revenues that cable TV service brought in its heyday. Enomoto argues that Comcast stock supports less lucrative theme parks and content businesses compared to Disney. Again, I have to agree.
The One Thing That Could Invigorate Comcast Stock
However, Comcast stock could have a potential catalyst in its valuation. CMCSA trades at a forward price-to-earnings ratio of about 12.2. Moreover, profit growth has remained robust. Consequently, analysts expect earnings increases of 20% this year and 11.1% in fiscal 2020.
This makes Comcast stock a bargain, but one I would not buy at this moment. The Federal Reserve rate cut and the escalation in the U.S.-China trade war has brought a generalized stock selloff. CMCSA will fall with almost every other stock under this circumstance.
Still, its P/E ratio has averaged around 16.3 over the last five years, well above current levels. The CMCSA stock price stands just above the $41 per share level as of the time of this writing. Investors should also note the stock trades near all-time highs currently. Comcast stock bounced back in both 2016 and 2018 when it reached the low-$30s-per-share level. Hence, traders are now dealing with a range-bound equity.
A return to the low-$30s-per-share floor would bring the P/E ratio into the single digits and create a buying opportunity. Moreover, if it sustained itself above the $45.30 per share all-time high and broke this price ceiling, it would probably become a buy as well.
Comcast has given little indication it will generate excitement in the coming years. However, at the right price, CMCSA stock could deliver the excitement the company has not.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
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