CHTR

[David Randolph]

1. Introduction

CHTR came up in my bullish technical filter. The chart is incredibly bullish. The stock also trades at a deep discount to its industry, because it has been unprofitable over the years. But there are early signs that the company might be about to turn profitable. Let's read the full analysis.

2. Profile

Charter Communications, Inc.(CHTR), through its subsidiaries, provides broadband communication services in the United States. It offers traditional cable video programming, high-speed Internet access; broadband cable services, such as video on demand, high definition television service, and interactive television; and telephone service through the Internet. As of December 31, 2005, the company served approximately 5.88 million analog video customers, approximately 2.20 million high-speed Internet customers, and approximately 121,500 telephone service customers. Charter Communications was founded in 1999 and is based in St. Louis, Missouri. The company sold a cable television system that served approximately 29,000 video subscribers in Oklahoma, Kansas, Missouri, and Texas to Allegiance Communications, LLC, in September 2006.

3. Technical Analysis
3.1. All History Chart



Nothing special on this long term chart. Probably there was dilution from 1999 until present.

3.2. Medium Term Chart



CHTR is on a powerfull bullish trend. The last time it did that it only stopped around $5.5.

3.3. Short Term Chart



Volume has been extremely high. The stock is set to breakout of the current range now. I know the stock is overbought, and it is hard to buy this high, but you get better pay by buying overbought stocks than oversold ones  

4. Fundamental Analysis
4.1. Number of Shares Outstanding



There's some problem with this data, on my usual source I have this evolution for the number of outstanding shares but I get conflicting information from other sources. I'll have to check this later.

The current market cap is 426.7 million * $2.75 = $1.17 B.

4.2. Revenues



There has been steady revenue growth. Revenues for 2006 are expected to come in at $5.49 B, but I believe the company will beat expectations, from what it has done so far in 2006. The attractive thing here is that CHTR trades at a fraction of revenues ($1.17 B/$5.49 B = 0.21) where as its industry group trades at 2.35 times revenues. If the revenue multiple at CHTR doubles to 0.42 nobody will be shocked, even though the company isn't profitable yet.

5. General Overview

I think there's strong upside to this story and not all that much risk. The company is growing revenues and someday it will be profitable. It trades at 1/10 the average revenue multiple of its peers, though. I think it can and will probably trade at 1/5 of this multiple. This represents a 100% profit opportunity for shareholders.

6. Trading Plan

I'll add CHTR to the 3 Stocks on Fire Portfolio at today's opening price, 6.66% of equity as always.

[David Randolph]

Everything's allright with CHTR, the stock still shows a bullish trend. It wasn't ready to breakout today on strong volume, but I have patience.

I'll continue holding CHTR.

[tokyopua]

Everything's allright with CHTR, the stock still shows a bullish trend. It wasn't ready to breakout today on strong volume, but I have patience.

I'll continue holding CHTR.

I admitedly havent followed the news on CHTR, but I wonder if there is a gap fill scenario that could play out around 2.3?  Or do you judge it a breakaway gap based on some specific news?  I was shy today about entry given the rather parabolic looking chart.

[David Randolph]

I admitedly havent followed the news on CHTR, but I wonder if there is a gap fill scenario that could play out around 2.3?  Or do you judge it a breakaway gap based on some specific news?  I was shy today about entry given the rather parabolic looking chart.

That gap was due to the Q3 earnings release:

Charter Reports Third-Quarter 2006 Financial and Operating Results

More interesting arguments on CHTR: Charter Gets a Little Respect

[David Randolph]

Apparently tokyopua was right in being a bit shy on CHTR and waiting for a better entry point. I admit that my analysis wasn't very convincing, it didn't convince me very much either 

But, as in all losing trades, I don't see mistakes (only if one doesn't take a small and manageable loss, which is a normal businessman risk), I see a lesson. And I might have learned a very important lesson with CHTR. Let me try to explain this:

As I said I would do, I would spend November just studying 3 stocks a day so I could be ready in December to restart co-managing the 3 Stocks on Fire Portfolio. But I just thought the portfolio was quite underinvested, so it would be very hard to outperform a rising market. Thinking of this, instead of waiting for opportunities, I started searching for them.

CHTR wasn't perfect, far from that, but on my limited time, it was the best stock I was able to find. Moreover, as I was writing the analysis, I found out negatives that weren't apparent at first sight. But I had not much more time before the open to buy something, so I kept those negatives quiet in my mind and focused mainly on the positives.

The fact is that CHTR has $18.8 B in long term debt, and its interest costs are rising. $18.5 B in long term debt is a lot for a $1.16 B market cap company, don't you agree?

Anyway, as I said, it is perfectly possible that CHTR, instead of trading at 1/10 of its industry's revenue multiple, it could trade at 1/5 that multiple. Because, this very high long term debt had been there for many quarters, and this quarter it got a bit better, declining from $19.9 B to $18.8 B (note, this decline in debt is as big as the market cap).

I once read an article, from a friend of mine which is a brilliant fundamental analyst (but not a great trader, it's funny), saying that companies with huge debt in fact could have enormous potential. I'll try to find that article again to see if it applies to CHTR.

Going back to the important thing, the lesson (a lesson is very important, a trade isn't, it's just another one in a series of many) that I took was: work hard to know and understand stocks, but wait for an opportunity to arise naturally. Study stocks with a disciplined method, not necessarily to buy or sell them, but to know them. Later, crystal clear trading opportunities will show up at the right time !

Now I have to deal with the situation of holding a less than super stock (I think). Above all, I trust the market, and I see the stock rebounded strongly by the end of the session, which is quite bullish. I want to keep the stock for as long as the short term trend is bullish, so I'll use the 10 SMA (blue on the chart) as a hold/sell indicator. I'll hold CHTR for as long as it is set to close above the 10 SMA. For tomorrow that indicator stands at $2.55.

My trading plan for tomorrow is to hold CHTR if it is set to close above $2.55 or sell it if it is set to close below $2.55.

[David Randolph]

I was out of CHTR by the close, according to plan:

My trading plan for tomorrow is to hold CHTR if it is set to close above $2.55 or sell it if it is set to close below $2.55.

Since I was concerned about the solidity of the bull case on CHTR, I could have made the plan of selling right at open and save (5.3%) on this trade. That probably would have been wise. Anyway, I gave the stock a chance, it didn't took it so I'm out, protecting capital for other trades.

[soxguy]

This one's coming off the floor with lots of volume. A trade here?

[soxguy]

CHTR at 1.31 now. Noticed it at 1.07. Did I buy? NOOOOO! Might bite if it pulls back. Has doubled from the lows.

[soxguy]

Hit 1.42 this morning. Yikes!

[la-onda]

 CHTR: Volume Spike; 40% > 20-adsv, Stock +1.44%
Thursday , May 29, 2008 13:55ET

This is the 1st VOLUME alert for CHTR in the past 7 calendar days.

Trading for Charter Communications CL A (NASDAQ NM: CHTR) has been heavier than usual in today's session. By 13:55 ET, the stock had already traded 7,121,402 shares via 6,550 trades. The cumulative volume is 40.36% above its 20-day average of 5,073,755. Normally the stock experiences around 4,642 individual trades per session.

So far, today's volume surge has caused a net rise in CHTR's stock price. At the time of this alert, the stock was trading at $1.410, up $0.020 (+1.44%).

One year ago, the Company's shares closed at $4.030. The price has declined more than 65 percent since then.

Over the last 10 trading session CHTR has traded in a range between $1.170 and $1.430 and is currently trading 71.40% below its 52-week high of $4.930 set on July 19,2007 and 131.15% above its 52-week low of $0.610 from March 13,2008.

In the previous 3 sessions, CHTR trading has displayed a mixed trend. Closing results have been as follows:

May 28, 2008 --- closed at $1.390 up $0.080 (+6.11%) on 8,533,700 shares
May 27, 2008 --- closed at $1.310 up $0.070 (+5.65%) on 3,946,500 shares
May 23, 2008 --- closed at $1.240 down $0.040 (-3.12%) on 4,048,500 shares

The Company last released news on May 29, 2008 (today):

"Stock Market Watch for Thursday, May 29, 2008: CAAH Growing in China!"