CenturyLink, Inc. (CTL)
Industry: Telecom Services Domestic
Inc., together with its subsidiaries, operates as an integrated communications
company. The company provides a range of communications services, including
local and long distance voice, wholesale network access, high-speed Internet
access, other data services, and video services in the continental
How valuable is the Stock?
When we think about value we have to think about the potential growth. How much potential? Something called the price to sales ratio gives us the best indicator of this. The lower the price/sales ratio, the healthier it is. If we compare ARCC to its industry, we find a mind-blowing embryonic possibility to sprout and grow. The industry comes in with an 2.77 ratio while CTL stands at 2.53. Next, we want to askhow much money is flowing through this company as compared to its price. This is called the price to cash flow ratio. The closer the ratio gets to that magical “100” the less capability a company has. “100” means it can just pay its bills because the value of the company is equal to the amount of money coming in and no more. The industry stands at 15.90 while CTL shows off two thirds of that, coming in at 9.90. We have an abundance of upside potential compared to the industry as a whole. The price to earnings ratio (P/E Ratio) is also lower coming in at (14.6 to 17.8) this is about 18% lower and looking healthyOur conclusion- this is still highly under valued! We give it an “A-”
How profitable is the Company?
If a company has a good sales force and the money is flowing, that is a possible good sign for an investment. But alone, this is not good. What if a company brings in money but then spends it as fast as it brings it in? “How much money is left over from a sale after you pay all your costs to make that sale?” This is called the gross margin. Comparing the industry to CTL, the industry comes in at 57.80%, while CTL’s gross margin is 65.2%. This is a modest 12% higher than the industry—nothing to boast but consistently a little better. ! “How good is the company at controlling its costs?” This is sometimes referred to as the net profit margin. If we divide the net profit by net revenues we come up with a %. The higher the % the better at money management the company is. The industry’s net profit margin is 11.3%. CTL comes in at 11.40%! Average! Our Conclusion- this company is average prodding along with the industry. We give it a “B-”
How good is the Management team?
One thing we really like about CTL is its Inventory Turnover Ratio this last year. A ratio showing how many times a company's inventory is sold and replaced over a period. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies strong sales. High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall. CTL had a Inventory Turnover ratio of a near perfect 93.3% while the industry as a whole was 13.8% on average. They were doing something right!
How well is the Company growing?
business we want to know if they are growing. Why would we put money into a
business that is not growing? The best way to understand if a company is
growing is to compare it to the industry as a whole. Since CTL is part of Telecom
Services Domestic, that is what we will compare it to. And what a wild year it
had! Sales year of year was mind-boggling for CTL Their sales grew at an
unbelievable 182.9% while
the industry as a whole was a somber 7.2%Over a 5 year period, they have been average right along side the industry in sales and net income, but last year they really exploded.
Long Term Investing
When we look at the long term chart on CTL we do not see much happening right now. Last year as an incredible run but this year we have been moving continually sideways in a very tight trading zone. But we do have a slight down ward trend in place, even so slight. We are not looking for this to move up at any real pace. We lost 10% in value the last half of April but we then picked up most of that back here, so no real movement going on here.