Why Ericsson Stock Is Rated a "Hold With Caution" Before Earnings
Ericsson (Nasdaq: ERIC) is a $25 billion company today. Investors that bought shares one year ago are sitting on a -2.08% total return. That's below the S&P 500's return of 16.36%.
Ericsson stock is underperforming the market. It's beaten down, but it reports earnings next week. So is it a good time to buy? To answer this question, we've turned to the Investment U Stock Grader. Our Research Team built this system to diagnose the financial health of a company.
Our system looks at six key metrics...
✗ Earnings-per-Share (EPS) Growth: Ericsson reported a recent EPS growth rate of -87.33%. That's below the communication equipment industry average of 44.53%. That's not a good sign. We like to see companies that have higher earnings growth.
✗ Price-to-Earnings (P/E): The average price-to-earnings ratio of the communication equipment industry is 52.22. And Ericsson's ratio comes in at 97.81. Its valuation looks expensive compared to many of its competitors.
✓ Debt-to-Equity : The debt-to-equity ratio for Ericsson stock is 29.44%. That's below the communication equipment industry average of 58.72%. The company is less leveraged.
✓ Free Cash Flow per Share Growth : Ericsson's FCF has been higher than that of its competitors over the last year. That's good for investors. In general, if a company is growing its FCF, it will be able to pay down debt, buy back stock, pay out more in dividends and/or invest money back into the business to help boost growth. It's one of our most important fundamental factors.
✗ Profit Margins : The profit margin of Ericsson comes in at -23.50% today. And generally, the higher, the better. We also like to see this margin above that of its competitors. Ericsson's profit margin is below the communication equipment average of 6.37%. So that's a negative indicator for investors.
✗ Return on Equity : Return on equity tells us how much profit a company produces with the money shareholders invest. The ROE for Ericsson is -8.23%, and that's below its industry average ROE of 12.16%.
Ericsson stock passes two of our six key metrics today. That's why our Investment U Stock Grader rates it as a Hold With Caution.
Please note that our fundamental factor checklist is just the first step in performing your own due diligence. There are many other factors you should consider before investing. That's why The Oxford Club offers more than a dozen newsletters and trading advisories all aimed at helping investors grow and maintain their wealth.
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