Investors Give Charter Communications, Inc. (NASDAQ:CHTR) Shares A 25% Hiding

The Charter Communications, Inc. (NASDAQ:CHTR) share price has fared very poorly over the last month, falling by a substantial 25%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 30% share price drop.

In spite of the heavy fall in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may still consider Charter Communications as an attractive investment with its 9x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Charter Communications' negative earnings growth of late has neither been better nor worse than most other companies. One possibility is that the P/E is low because investors think the company's earnings may begin to slide even faster. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. At the very least, you'd be hoping that earnings don't fall off a cliff if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for Charter Communications

Want the full picture on analyst estimates for the company? Then our free report on Charter Communications will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The Low P/E?

Charter Communications' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a frustrating 2.4% decrease to the company's bottom line. Even so, admirably EPS has lifted 98% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 13% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 10% per annum, which is noticeably less attractive.

In light of this, it's peculiar that Charter Communications' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

Charter Communications' P/E has taken a tumble along with its share price. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Charter Communications' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Charter Communications (1 is a bit concerning) you should be aware of.

If you're unsure about the strength of Charter Communications' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.