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3 Reasons To Avoid Charter Communications

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both will help you earn higher than average investment returns and build your wealth.

There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.

The key to continue compounding your capital is to keep investing well over time… Combine this with dividends and you’re well on your way to building a retirement account you can live off.

And this is a huge part of things.

But another huge part of this is losing as little capital as possible.

The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.

But most only think of investing well. 

Today, I want to show you 3 Reasons To Avoid Charter Communications so you can continue building your wealth safely.

3 Reasons To Avoid Investing In Charter Communications

  1. It’s Got A Lot of Debt

Charter Communications (CHTR) is one of the United States largest cable and internet providers with access to 52 million homes.

And it’s got a lot of debt because of the 2016 merger of 3 companies – Legacy Charter, Time Warner Cable, and Bright House Networks – that created Charter Communications.

As of the most recent quarter its balance sheet is 78.7% in total liabilities.  And its debt to equity ratio is 2.65.

I want to invest in safe stocks that will be around for decades to build wealth over the long term.  This helps insure I lose as little money as possible over time.

Typically, this means I invest in companies that have little to no debt compared to their cash and equity.  For example, I like to invest in stocks that have debt to equity ratios below 1.

Its debt to equity ratio at 2.65 may not seem important… But it is.

It has only $2.1 billion in cash compared to $78.6 billion in total debt and capital leases.

Its debt is so large that it makes up 60.8% of its $129.3 billion market cap.

And debt levels are 36.4X or 3643% higher than the cash it has.

This makes investing in Charter stock riskier right now… Especially with all the craziness going on today.

Plus, there’s something else that makes it risky too…

2. Its Overvalued

Its current P/E is 59.8.

Its current P/CF is 10.3.

And its current forward P/E is 33.2.

I look to buy companies with valuations below 20 on all these metrics to consider the company undervalued or at worst fairly valued…

Charter is well above this threshold.

Why below 20?

Because that means the company is at worst fairly valued… And if its significantly under 20 that means the company is undervalued.

When a stock is fairly valued or undervalued it gives you more margin of safety in investing terms.

This means you have a better chance of earning higher returns owning its stock over time.  And these things combined make it a less risky investment.

With Charter being overvalued it means there is no margin of safety… That you have a far lower likelihood of making money owning it over time.  And these make investing in it riskier.

Plus, there’s something else going on in the cable industry that negatively effects the long-term prospects of Charter…

3. Cord Cutting

In 2013 there was an estimated 100.5 million United States households that paid a monthly subscription for cable.

That’s dropped by 17.5% today to only 82.9 million people.

And this number is projected to continue falling all the way to 72.7 million by 2023.  This process of people getting rid of their cable subscriptions is called cord cutting.

Why is this happening?

Because its no longer necessary to have cable for entertainment.  You can now stream almost anything you want to your TV’s, phones, and other devices anywhere on the go.

As a few examples…

  • Netflix now has 182.8 million subscribers worldwide as of April 2020. 
  • Amazon Prime Video has 150 million subscribers as of February 2020.
  • And Disney+ has 60.5 million subscribers as of August 2020 only 9 months after launching in November 2019.

Cable companies like Charter partially offset this by getting more people to buy internet services through them.

But that’s becoming less necessary with data plans from cell phone operators.

Cable looks on an inevitable decline to extinction over the next decade plus which makes investing in Charter stock even more risky.

For the reasons of its large debt, overvaluation, and cord cutting I recommend you avoid buying Charter Communications stock due to the high-risk factor of all these combined.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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