AT&T’s 16.6% return over the past six months has outpaced the S&P 500 by 14%, and its stock price has climbed to $21.67 per share. This run-up might have investors contemplating their next move.
Is now the time to buy AT&T, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
We’re glad investors have benefited from the price increase, but we're swiping left on AT&T for now. Here are three reasons why you should be careful with T and a stock we'd rather own.
Why Do We Think AT&T Will Underperform?
Founded by Alexander Graham Bell, AT&T (NYSE:T) is a multinational telecomm conglomerate providing a range of communications and internet services.
1. Revenue Spiraling Downwards
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, AT&T’s demand was weak and its revenue declined by 7.7% per year. This was below our standards and signals it’s a low quality business. 
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for AT&T, its EPS declined by more than its revenue over the last five years, dropping 10.2% annually. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
3. Previous Growth Initiatives Haven’t Paid Off Yet
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
AT&T historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 3%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of AT&T, we’ll be cheering from the sidelines. With its shares outperforming the market lately, the stock trades at 9.7× forward price-to-earnings (or $21.67 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d recommend looking at TransDigm, a dominant Aerospace business that has perfected its M&A strategy.
Stocks We Like More Than AT&T
With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.
Put yourself in the driver’s seat by checking out our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,691% between September 2019 and September 2024) as well as under-the-radar businesses like Comfort Systems (+783% five-year return). Find your next big winner with StockStory today for free.
