EchoStar’s stock price has taken a beating over the past six months, shedding 21.7% of its value and falling to $96.48 per share. This may have investors wondering how to approach the situation.
Is now the time to buy EchoStar, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is EchoStar Not Exciting?
Despite the more favorable entry price, we’re swiping left on EchoStar for now. Here are three reasons why there are better opportunities than ECHO, plus one stock we’d rather own.
1. Revenue Tumbling Downwards
Long-term growth is the most important, but within business services, a stretched historical view may miss new innovations or demand cycles. EchoStar’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 6.1% over the last two years. 
2. New Investments Fail to Bear Fruit as ROIC Declines
We like to invest in businesses with high returns, but the trend in a company’s ROIC can also be an early indicator of future business quality.
Unfortunately, EchoStar’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.
3. Restricted Access to Capital Increases Risk
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
EchoStar posted negative $16.14 billion of EBITDA over the last 12 months, and its $30.12 billion of debt exceeds the $3.16 billion of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
We implore our readers to tread carefully because credit agencies could downgrade EchoStar if its unprofitable ways continue, making incremental borrowing more expensive and restricting growth prospects. The company could also be backed into a corner if the market turns unexpectedly. We hope EchoStar can improve its profitability and remain cautious until then.
Final Judgment
EchoStar isn’t a terrible business, but it isn’t one of our picks. After the recent drawdown, the stock trades at 24.1× forward EV-to-EBITDA (or $96.48 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward an all-weather company that owns household favorite Taco Bell.
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