Since September 2024, Verizon has been in a holding pattern, posting a small return of 0.8% while floating around $44.28.

Is now the time to buy Verizon, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

We're swiping left on Verizon for now. Here are three reasons why you should be careful with VZ and a stock we'd rather own.

Why Do We Think Verizon Will Underperform?

Formed in 1984 as Bell Atlantic after the breakup of Bell System into seven companies, Verizon (NYSE:VZ) is a telecom giant providing a range of communications and internet services.

1. Customer Base Hits a Plateau

Revenue growth can be broken down into the number of customers and the average spend per customer. Both are important because an increasing customer base leads to more upselling opportunities while the revenue per customer shows how successful a company was in executing its upselling strategy.

Over the last two years, Verizon’s total customers were flat, coming in at 146.1 million in the latest quarter. This performance was underwhelming and shows the company faced challenges in landing new contracts. It also suggests there may be increasing competition or market saturation.

2. Projected Revenue Growth Is Slim

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 Verizon’s revenue to rise by 1.8%. Although this projection suggests its newer products and services will spur better top-line performance, it is still below average for the sector.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Verizon’s ROIC averaged 4.1 percentage point decreases over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

Verizon doesn’t pass our quality test. That said, the stock currently trades at 9.3× forward price-to-earnings (or $44.28 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 recommend looking at a dominant Aerospace business that has perfected its M&A strategy.

Stocks We Would Buy Instead of Verizon

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