Gray Television currently trades at $5.13 per share and has shown little upside over the past six months, posting a middling return of 2%.

Is there a buying opportunity in Gray Television, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

We're swiping left on Gray Television for now. Here are three reasons why we avoid GTN and a stock we'd rather own.

Why Do We Think Gray Television Will Underperform?

Specializing in local media coverage, Gray Television (NYSE:GTN) is a broadcast company supplying digital media to various markets in the United States.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Gray Television grew its sales at a 11.4% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.

2. Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Gray Television’s revenue to drop by 11.8%, a decrease from its flat sales for the past two years. This projection is underwhelming and implies its products and services will see some demand headwinds.

3. Cash Flow Margin Set to Decline

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Over the next year, analysts predict Gray Television’s cash conversion will fall to break even. Their consensus estimates imply its free cash flow margin of 10.5% for the last 12 months will decrease by 10 percentage points.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of Gray Television, we’ll be cheering from the sidelines. That said, the stock currently trades at 0.7× forward EV-to-EBITDA (or $5.13 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. We’d suggest looking at an all-weather company that owns household favorite Taco Bell.

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