Cable One (CABO)

Internet, cable TV, and phone provider Cable One (NYSE:CABO) fell short of the markets revenue expectations in Q3 CY2025, with sales falling 4.5% year on year to $376 million. Its GAAP profit of $14.52 per share was 94.5% above analysts’ consensus estimates.

Company Overview

Founded in 1986, Cable One (NYSE:CABO) provides high-speed internet, cable television, and telephone services, primarily in smaller markets across the United States.

The massive physical footprints of cell phone towers, fiber in the ground, or satellites in space make it challenging for companies in this industry to adjust to shifting consumer habits. Over the last decade-plus, consumers have ‘cut the cord’ to their landlines and traditional cable subscriptions in favor of wireless communications and streaming video. These trends do mean that more households need cell phone plans and high-speed internet. Companies that successfully serve customers can enjoy high retention rates and pricing power since the options for mobile and internet connectivity in any geography are usually limited.

Competitors in the telecommunications and media services industry include Charter Communications (NASDAQ:CHTR), Comcast (NASDAQ:CMCSA), and WideOpenWest (NYSE:WOW).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Cable One’s sales grew at a sluggish 3.1% compounded annual growth rate over the last five years. This was below our standard for the consumer discretionary sector and is a tough starting point for our analysis.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Cable One’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 5.1% annually.

We can dig further into the company’s revenue dynamics by analyzing its number of residential data subscribers and residential video subscribers, which clocked in at 910,400 and 58,400 in the latest quarter. Over the last two years, Cable One’s residential data subscribers averaged 2.3% year-on-year declines while its residential video subscribers averaged 23.9% year-on-year declines.

This quarter, Cable One missed Wall Street’s estimates and reported a rather uninspiring 4.5% year-on-year revenue decline, generating $376 million of revenue.

Looking ahead, sell-side analysts expect revenue to decline by 2.8% over the next 12 months. Although this projection is better than its two-year trend, it’s hard to get excited about a company that is struggling with demand.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Cable One’s operating margin has been trending down over the last 12 months and averaged 8.6% over the last two years. The company’s profitability was mediocre for a consumer discretionary business and shows it couldn’t pass its higher operating expenses onto its customers.

This quarter, Cable One generated an operating margin profit margin of 25.2%, down 2.8 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Cable One, its EPS declined by 31.3% annually over the last five years while its revenue grew by 3.1%. This tells us the company became less profitable on a per-share basis as it expanded.

In Q3, Cable One reported EPS of $14.52, up from $7.58 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts forecast Cable One’s full-year EPS of negative $81.43 will flip to positive $32.31.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Cable One has shown robust cash profitability, giving it an edge over its competitors and the ability to reinvest or return capital to investors. The company’s free cash flow margin averaged 19.8% over the last two years, quite impressive for a consumer discretionary business. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Cable One’s free cash flow clocked in at $84.75 million in Q3, equivalent to a 22.5% margin. The company’s cash profitability regressed as it was 2.7 percentage points lower than in the same quarter last year, but it’s still above its two-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends trump temporary fluctuations.

Over the next year, analysts predict Cable One’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 19.8% for the last 12 months will increase to 23.4%, it options for capital deployment (investments, share buybacks, etc.).

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Cable One historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.8%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Cable One’s ROIC has unfortunately decreased. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Cable One reported $166.6 million of cash and $3.28 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $818.8 million of EBITDA over the last 12 months, we view Cable One’s 3.8× net-debt-to-EBITDA ratio as safe. We also see its $88.23 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see Cable One beat analysts’ EPS expectations this quarter. On the other hand, both its residential video and data subscriber counts missed, resulting in revenue that fell short of Wall Street’s estimates. Overall, this print was mixed. The stock remained flat at $134.68 immediately after reporting.

Updated: December 3, 2025 at 9:46 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Cable One falls short of our quality standards. First off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. On top of that, Cable One’s number of residential data subscribers has disappointed, and its Forecasted free cash flow margin suggests the company will have more capital to invest or return to shareholders next year.

Cable One’s P/E ratio based on the next 12 months is 3.1x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $162.25 on the company (compared to the current share price of $121.30).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.