Over the past six months, Altice’s shares (currently trading at $2.22) have posted a disappointing 14% loss while the S&P 500 was flat. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Altice, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Altice Will Underperform?
Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons why ATUS doesn't excite us and a stock we'd rather own.
1. Decline in Broadband Subscribers Points to Weak Demand
Revenue growth can be broken down into changes in price and volume (for companies like Altice, our preferred volume metric is broadband subscribers). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Altice’s broadband subscribers came in at 3.96 million in the latest quarter, and over the last two years, averaged 3.2% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Altice might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability. 
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Altice, its EPS declined by 27.4% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Altice burned through $82.82 million of cash over the last year, and its $25.3 billion of debt exceeds the $279.1 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the Altice’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of Altice until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
Altice doesn’t pass our quality test. Following the recent decline, the stock trades at 0.3× forward EV-to-EBITDA (or $2.22 per share). This valuation is reasonable, but the company’s shaky fundamentals present too much downside risk. There are superior stocks to buy right now. We’d suggest looking at the Amazon and PayPal of Latin America.
Stocks We Would Buy Instead of Altice
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