A strong performer from today's morning trading session is Crown Castle, whose shares rose 1.3% to $91.73 per share. For those of you thinking about investing in the stock, here is a brief value analysis of the stock using the company's basic fundamental ratios.
Crown Castle Has Elevated P/B and P/E Ratios:
Crown Castle Inc. owns, operates and leases approximately 40,000 cell towers and approximately 90,000 route miles of fiber. The company belongs to the Real Estate sector, which has an average price to earnings (P/E) ratio of 27.31. In contrast, Crown Castle has a trailing 12 month P/E ratio of 38.7 based on its earnings per share of $2.37.
There is an important limit on the usefulness of P/E ratios. Since the P/E ratio is the share price divided by earnings per share, the ratio is determined partially by market sentiment on the stock. Sometimes a negative sentiment translates to a lower market price and therefore a lower P/E ratio -- and there might be good reasons for this negative sentiment.
One of the main reasons not to blindly invest in a company with a low P/E ratio is that it might have low growth expectations. Low growth correlates with low stock performance, so it's useful to factor growth into the valuation process. One of the easiest ways to do this is to divide the company's P/E ratio by its expected growth rate, which results in the price to earnings growth, or PEG ratio.
Crown Castle's PEG ratio is 1.48, which shows that the stock is overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
The Company's Revenues Are Declining:
| 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $5,840 | $6,340 | $6,986 | $4,734 | $4,460 | $4,264 |
| Operating Margins | 32% | 32% | 35% | 44% | 47% | 49% |
| Net Margins | 18% | 17% | 24% | 32% | -88% | 10% |
| Net Income (M) | $1,056 | $1,096 | $1,675 | $1,502 | -$3,903 | $444 |
| Net Interest Expense (M) | $689 | $657 | -$699 | $849 | $932 | $972 |
| Depreciation & Amort. (M) | $1,200 | $1,200 | $1,200 | $519 | $515 | $488 |
| Diluted Shares (M) | 425 | 434 | 434 | 434 | 434 | 437 |
| Earnings Per Share | $2.35 | $2.53 | $3.86 | $3.46 | -$8.98 | $1.01 |
| EPS Growth | n/a | 7.66% | 52.57% | -10.36% | -359.54% | 111.25% |
| Avg. Price | $142.7 | $167.72 | $169.73 | $115.19 | $90.08 | $90.57 |
| P/E Ratio | 60.47 | 66.03 | 43.86 | 33.29 | -10.03 | 88.79 |
| Free Cash Flow (M) | $1,431 | $1,560 | $1,568 | $2,883 | $2,767 | $2,875 |
| CAPEX (M) | $1,624 | $1,229 | $1,310 | $243 | $176 | $182 |
| EV / EBITDA | 25.68 | 28.97 | 26.41 | 28.13 | 24.19 | 25.93 |
| Total Debt (M) | $19,409 | $20,701 | $22,548 | $23,756 | $24,684 | $27,120 |
| Net Debt / EBITDA | 6.26 | 6.38 | 6.18 | 9.04 | 9.34 | 10.54 |
| Current Ratio | 0.56 | 0.62 | 0.45 | 0.4 | 0.5 | 0.26 |
Crown Castle's financial statements include several red flags such as declining revenues and decreasing reinvestment in the business, declining EPS growth, and not enough current assets to cover current liabilities because its current ratio is 0.26. Additionally, the firm has a highly leveraged balance sheet. On the other hand, the company benefits from strong operating margins with a positive growth rate and generally positive cash flows.
