Despite inflation currently moderating, it is still significantly high and will continue to impact consumer spending this year. Moreover, recession concerns are rising. According to a survey, 75% of Americans say they worry recession is on the way.
Considering the lingering macroeconomic headwinds, I think it is best to steer clear of fundamentally weak telecom stocks Shenandoah Telecommunications Company (SHEN), Cuentas Inc. (CUEN), and Anterix Inc. (ATEX) this month.
Rising borrowing rates, higher operational costs, and increased pressure on capital expenditures make telecoms vulnerable to customers migrating to lower-margin products. Also, Fed officials are not expected to slash interest rates until 2024.
In addition, according to Bain and Company, “If price increases are too aggressive or the customer experience suffers from cost-cutting or labor shortages, customer loyalty could erode and contribute to further churn.”
Shenandoah Telecommunications Company (SHEN)
SHEN and its subsidiaries offer a variety of broadband communication services as well as cell tower colocation space in the Mid-Atlantic region of the United States.
Its forward EV/Sales multiple of 3.90 is 113.9% higher than the 1.82 industry average. In terms of its forward Price/Sales, SHEN is trading at 3.60x, which is 190.5% higher than the industry average of 1.24x.
SHEN’s trailing-12-month ROTC of 0.51% is 85.9% lower than the 3.57% industry average. Its trailing-12-month EBIT margin of 2.22% is 72.7% lower than the 8.14% industry average.
SHEN’s total operating expenses increased 11.2% year-over-year to $275.33 million for the fiscal year that ended December 31, 2022. Its operating loss increased 227.5% from the prior year to $7.96 million. Its net loss came in at $8.38 million, compared to a net income of $998.83 million in the prior year.
Also, its net loss per share amounted to $0.17, compared to a net EPS of $19.92 in the fiscal year 2021.
Street expects SHEN’s EPS to fall 115.6% year-over-year to negative $0.37 in 2023. It has missed EPS estimates in all four trailing quarters. The stock has lost 14.9% over the past year to close the last trading session at $19.66.
SHEN’s POWR Ratings reflect its bleak outlook. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SHEN also has an F grade for Value and a D for Growth, Sentiment and Quality. The stock is ranked #16 out of 19 stocks in the Telecom - Domestic industry. SHEN ratings for Stability and Momentum can be accessed here.
Cuentas Inc. (CUEN)
CUES and its subsidiaries provide mobile, e-commerce, prepaid debit, and digital content services to unbanked, underbanked, and underserved populations in the United States and around the world.
Its trailing-12-month EV/Sales multiple of 3.04 is 54.3% higher than the 1.97 industry average. In terms of its trailing-12-month Price/Sales, CUEN is trading at 1.83x, which is 39% higher than the industry average of 1.32x.
CUES’s trailing-12-month negative ROCE, and ROTA of 333.05% and 969.38% are lower than the industry averages of 2.94% and 1.32%, respectively.
During the year that ended December 31, 2022, CUEN’s operating expenses increased 37.6% year-over-year to $14.84 million. Its operating loss increased 34.6% year-over-year to $14.36 million. Also, the company’s net loss increased 35.4% year-over-year to $14.53 million, while the loss per share came in at $11.81, up 26.7% year-over-year.
The stock has declined 73.9% over the past year to close the last trading session at $4.45.
CUEN has an overall F rating, equating to a Strong Sell in our POWR Ratings system.
It has an F grade for Stability and Value and D for Quality. It is ranked #17 in the same industry. We have also rated CUEN for Growth, Sentiment and Momentum. Get all the CUEN ratings here.
Anterix Inc. (ATEX)
ATEX is a wireless communication company. The company focuses on commercializing its spectrum assets in order to enable targeted utility and critical infrastructure customers to develop private broadband networks, technologies, and solutions.
ATEX’s forward EV/Sales multiple of 258.02 is significantly higher than the 1.83 industry average. In terms of its forward Price/Sales, ATEX is trading at 283.48x, which is significantly higher than the industry average of 1.25x.
ATEX’s trailing-12-month negative ROCE and ROTA of negative 24.18% and 16.64% are lower than the industry averages of 2.94% and 1.32%, respectively.
ATEX’s operating expenses increased 15.9% year-over-year to $42.78 million for the nine month ended December 31, 2022. Its loss from operations increased 23.4% year-over-year to $32.14 million. The company’s net loss and loss per share came in at $31.86 million and $1.69, up 20.2% and 15% year-over-year, respectively.
Analysts expect ATEX’s EPS to remain negative in 2023. Over the past year, the stock has lost 44.2% to close the last trading session at $31.02.
ATEX’s has an overall F rating, equating to a Strong Sell in our proprietary rating system.
In addition, the stock has an F grade for Value and Quality and a D for Stability. It is ranked #18 in the same industry. To access ATEX’s Growth, Sentiment and Momentum grades, click here.
Consider This Before Placing Your Next Trade…
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SHEN shares were trading at $19.48 per share on Wednesday morning, down $0.18 (-0.92%). Year-to-date, SHEN has gained 22.67%, versus a 8.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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