CABO

Cable One ($CABO) Plunges 66%, Value Investing Legend Weitz Scoops Up $930K in 'Bottom Fishing'

06/17/2025 03:23

Cable One Inc ($CABO) presents investors with an extreme binary choice. This cable telecommunications company has plummeted 66% from its 2024 high of $379 to the current $130 level, but renowned value investors are now making substantial purchases in June, potentially signaling a 'bottom fishing' opportunity. Cable One provides cable internet, video, and voice services primarily to small and mid-sized cities across the United States. Operating under brands like Sparklight, Clearwave, and Hargray, the company has focused particularly on broadband internet services. While it has grown by capitalizing on steady internet demand despite the cord-cutting trend in cable TV, it has recently faced challenges from intensifying competition and customer churn. Insider trading activity over just three days from June 11-13 has captured market attention. Most notably, director Wallace Weitz purchased 7,000 shares at $132.95 per share on June 13, investing a total of $930,000. This continues his buying streak from March when he purchased 4,000 shares. Weitz is the founder of Weitz Investment Management, famous for value investing, and a veteran investor who has followed Warren Buffett's investment philosophy for over 30 years. His purchase represents more than just insider trading - it's a strong vote of confidence. During the same period, director Mary Meduski purchased 250 shares at $148, while CEO Margaret Detz bought 300 shares at $132.28. This simultaneous buying spree suggests that company insiders view the current stock price as extremely undervalued. The backdrop for these insider purchases is the company's severe earnings deterioration. In first-quarter results announced in May, Cable One reported adjusted EPS of $0.46, down 94% from $8.11 in the same period last year. Revenue also declined 5.9% to $380.6 million, missing market expectations. Following this shocking earnings announcement, the stock plummeted 35% in a single day to reach an all-time low. However, from a value investing perspective, Cable One's current valuation appears very attractive. Ultra-low valuation metrics like P/E of 0.5x and P/B of 0.41x support this view. Particularly, the EV/EBITDA of 5.86x is significantly below the industry average. Even more eye-catching is the 8.95% dividend yield. Despite currently recording losses, the $270 million in levered free cash flow supports dividend payment capability. Nevertheless, risks that investors must consider are substantial. The biggest concern is the debt-to-equity ratio of 200.74%. With total debt exceeding twice the equity, questions about financial stability are being raised. Additionally, the structural decline of the cable TV market and the emergence of new competitors like 5G and Starlink constrain long-term growth prospects. Cable industry experts diagnose the current situation as a 'turning point.' The key question is whether traditional cable TV revenue declines can be offset by growth in broadband internet and business services. Cable One has recently undertaken restructuring, reducing workforce by approximately 4% and securing a $1.25 billion credit facility through organizational changes. Key metrics investors should monitor are customer churn rates and ARPU (Average Revenue Per User) trends. If quarterly customer churn stabilizes below 2% and internet service ARPU grows over 5% per quarter, these could be recovery signals. Conversely, if churn exceeds 3% or revenue declines persist for three consecutive quarters, further downside should be expected. In an optimistic scenario, Cable One's fiber infrastructure advantage could be revalued compared to telecom companies burdened with heavy 5G investments. Particularly, its monopolistic position in small cities and stable cash flows remain attractive to dividend investors. The most likely base case scenario involves confirming an earnings bottom over the next 2-3 quarters followed by gradual recovery. In a risk scenario, debt burden could lead to dividend suspension. Especially in a rising interest rate environment, high debt ratios directly translate to increased financial costs. Additional customer churn and pricing pressure from intensifying competition are also concerns. In conclusion, Cable One represents an intriguing investment opportunity where strong insider buying signals have been detected in an extremely undervalued situation. However, given the risks of high debt ratios and structural industry changes, it's wise to approach this only as a small portfolio allocation. While respecting the judgment of veteran value investors like Wallace Weitz, investors should approach this stock cautiously within their own risk tolerance levels.

You can receive notifications when news is published.