January Insights Into Telco Stocks: General Communication Inc (NASDAQ:GNCM.A)
General Communication Inc (NASDAQ:GNCM.A), a $1.52B small-cap, is a telco company operating in an industry which has experienced slower top-line growth in the past decade due to the declining high-margin call service but increasing low-margin data usage. Telco analysts are forecasting for the entire industry, a positive double-digit growth of 10.47% in the upcoming year , and a robust short-term growth of 11.36% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Today, I will analyse the industry outlook, and also determine whether General Communication is a laggard or leader relative to its telco sector peers. See our latest analysis for General Communication
What’s the catalyst for General Communication’s sector growth?
The convergence that has been talked about is now happening, but driven by disruption rather than well-considered strategies and marketing campaigns. Overall the growth in this segment of the telco industry is stagnating, and often the only way to maintain profitability is through cost-cutting. On the positive side, innovations and technological developments allow these companies to be more cost-competitive. Over the past year, the industry saw growth of 4.94%, though still underperforming the wider US stock market. General Communication lags the pack with its sustained negative earnings over the past couple of years. The company’s outlook seems uncertain, with a lack of analyst coverage, which doesn’t boost our confidence in the stock. This lack of growth and transparency means General Communication may be trading cheaper than its peers.
Is General Communication and the sector relatively cheap?
The telco industry is trading at a PE ratio of 17.8x, in-line with the US stock market PE of 20.1x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. Furthermore, the industry returned a similar 10.02% on equities compared to the market’s 10.43%, potentially illustrative of a turnaround. Since General Communication’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge General Communication’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:
General Communication has been an telco industry laggard in the past year. If General Communication has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although it delivered lower growth relative to its telco peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at General Communication’s fundamentals in order to build a holistic investment thesis.
1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Historical Track Record: What has GNCM.A’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of General Communication? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.