Is Charter Communications Playing a Dangerous Game?
Charter Communications (NASDAQ: CHTR) has long been a value investing favorite. The company operates a large footprint of broadband and cable operations, which it consolidated after the 2016 acquisitions of Time Warner Cable and Bright House Networks. With legendary cable investor John Malone's Liberty Broadband Corporation (NASDAQ: LBRDK) owning more than 27% of shares and having a big input into Charter's strategy, the company seemed like a safe bet – until this year.
After reaping synergies and upgrading each network to modern broadband technologies, Charter posted steady broadband growth for years, generating market-beating gains between 2016 and 2021. However, as interest rates have rapidly risen and broadband growth has slowed, the script has flipped, with the stock now underperforming in a big way.
That could be due to Charter's somewhat risky capital allocation strategy that aims to juice equity returns over time. If Charter can maintain some growth and profitability, that strategy could pay off big for shareholders; however, if the business loses momentum and interest rates go higher, it could run into problems. With the stock now back at 2018 levels, Charter could be a huge winner -- but how big of a risk is it taking?
Source Fool.com
