Cable One (CABO)

Internet, cable TV, and phone provider Cable One (NYSE:CABO) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 5.9% year on year to $380.6 million. Its GAAP profit of $0.46 per share was 94.3% below 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).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Cable One’s sales grew at a sluggish 5.1% compounded annual growth rate over the last five years. This was below our standard for the consumer discretionary sector and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Cable One’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 4.4% 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 945,000 and 101,300 in the latest quarter. Over the last two years, Cable One’s residential data subscribers averaged 1.4% year-on-year declines while its residential video subscribers averaged 22.6% year-on-year declines.

This quarter, Cable One missed Wall Street’s estimates and reported a rather uninspiring 5.9% year-on-year revenue decline, generating $380.6 million of revenue.

Looking ahead, sell-side analysts expect revenue to decline by 1.5% over the next 12 months. While this projection is better than its two-year trend, it's tough to feel optimistic about a company facing demand difficulties.

Cable One’s operating margin has shrunk over the last 12 months, but it still averaged 29% over the last two years, elite for a consumer discretionary business. This shows it’s an well-run company with an efficient cost structure.

This quarter, Cable One generated an operating profit margin of 25.1%, down 4.5 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 16.1% annually over the last five years while its revenue grew by 5.1%. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

In Q1, Cable One reported EPS at $0.46, down from $6.46 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast Cable One’s full-year EPS of negative $4.09 will flip to positive $30.42.

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 20.2% over the last two years, quite impressive for a consumer discretionary business.

Cable One’s free cash flow clocked in at $45.2 million in Q1, equivalent to a 11.9% margin. The company’s cash profitability regressed as it was 12.6 percentage points lower than in the same quarter last year, prompting us to pay closer attention. Short-term fluctuations typically aren’t a big deal because investment needs can be seasonal, but we’ll be watching to see if the trend extrapolates into future quarters.

Over the next year, analysts predict Cable One’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 20.8% for the last 12 months will decrease to 18.7%.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative 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 9.1%, 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 averaged 2.8 percentage point decreases each year. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Cable One reported $149.1 million of cash and $3.55 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 $839.6 million of EBITDA over the last 12 months, we view Cable One’s 4.0× net-debt-to-EBITDA ratio as safe. We also see its $91.48 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.

We struggled to find many positives in these results. Its number of residential data subscribers missed along with its revenue, EPS, and EBITDA. Overall, this was a weaker quarter. The stock traded down 10.5% to $235.00 immediately following the results.

Updated: May 22, 2025 at 10:48 PM EDT

When considering an investment in Cable One, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Cable One falls short of our quality standards. To begin with, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its impressive operating margins show it has a highly efficient business model, the downside is its number of residential data subscribers has disappointed. On top of that, its projected EPS for the next year is lacking.

Cable One’s EV-to-EBITDA ratio based on the next 12 months is 1x. While this valuation is reasonable, we don’t see a big opportunity at the moment. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $274 on the company (compared to the current share price of $148.30).

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.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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