Comcast (CMCSA) Stock Looks Reasonable Even After A 47% Slide

Comcast stock has had a difficult run over the last few years, yet the current valuation checks suggest the shares now lean cheap rather than expensive.

• Comcast has declined 47.4% over the past 5 years, which means any sign of value support will be closely watched by investors who have already seen a long period of weak returns.
• The planned tax free spin off of NBCUniversal and Sky may help sharpen the focus of the remaining cable and internet businesses. The separation also introduces execution risk as investors reassess what each standalone company is worth.
• On Simply Wall St's broader checks, Comcast screens as undervalued in 5 of 6 valuation tests. This points to a stock that currently looks cheap across several common metrics such as earnings and assets here.

The issue now is whether Comcast's current share price already reflects the challenges behind that 5 year decline or if the valuation still leaves a margin of safety for new money.

Find out why Comcast's -13.9% return over the last year is lagging behind its peers.

Is Comcast a Bargain on Earnings?

The P/E ratio suits Comcast because earnings are still a central anchor for how many investors look at large established telecom and media stocks. Comcast currently trades on a P/E of 7.8x, which is below the telecom industry average of 17.0x and also below the peer average of 10.9x. On Simply Wall St’s fair ratio framework, which blends factors like growth, profitability, size and risk, Comcast would screen closer to 14.0x.

That gap between the current 7.8x and the 14.0x fair ratio indicates that the market is applying a sizeable discount to Comcast, even after news of the NBCUniversal and Sky spin off plan refocused attention on the core cable and internet operations. Although that corporate reshuffle raises questions about future earnings mix, the P/E still sits well under both industry levels and the model’s tailored fair multiple.

On the P/E multiple alone, Comcast stock appears undervalued compared with both industry benchmarks and the fair ratio implied by its fundamentals.

See what the numbers say about this price — find out in our valuation breakdown.

The Comcast Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for Comcast pick up where the valuation puzzle leaves off. They spell out what set of assumptions about Comcast's future growth, margins and earnings would need to hold for the stock to be worth materially more or less than today's price, and each one ties a fair value estimate to a specific story about the company's potential catalysts and risks. This allows you to watch over time which version of events is actually playing out on the Community page.

Community views on Comcast sit wide apart, with some readers focused on earnings power after the media spin off and others worried about broadband pressure and pricing resets.

Bull case: 22% undervalued

"Recent U.S. tax legislation restoring 100% bonus depreciation is enhancing Comcast's ability to reinvest aggressively in domestic infrastructure, translating into an estimated ~$1B annual cash tax benefit for several years..."

Read the full Bull Case to see why Comcast could be undervalued

Bear case: 18% overvalued

"Stagnant broadband growth remains a serious risk as the US market for broadband is reaching saturation, with slowing population growth and minimal expansion in addressable households..."

Read the full Bear Case to see why Comcast could be overvalued

Do you think there's more to the story for Comcast? Head over to our Community to see what others are saying!

The Bottom Line

On the current numbers, Comcast screens as undervalued on earnings based market multiples, with a sizeable gap between its P/E and both industry levels and the tailored fair ratio. That looks interesting after a weak 5 year share price run, but only if the core cable and internet business can support stable earnings once NBCUniversal and Sky are spun off. The key question is whether the discount reflects short term uncertainty or a more permanent hit from broadband pressure and execution risk around the separation. Your view on that single issue is what really decides whether Comcast looks like a value opportunity or a value trap from here.

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.

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