Cumulus Shares Suffering From A Three-Month Funk

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As the first half of 2021 ended, Cumulus Media could count itself among a select group of publicly traded broadcasters that were enjoying strong interest in investors on Wall Street. Shares reached $14.75 after bottoming out at $9 on May 4.


With hours remaining in trading on September 17, Cumulus shares are moving closer to that six-month low point, punctuating a 90-day decline for the company’s stock.

As of 1:10pm Eastern, CMLS sat at $9.87.

That marks the first time since May 17 shares dipped below $10 per share, and returns Cumulus to where it was on May 14.

For the long-term investor, Cumulus is still far above where it was one year ago, when prices were in the high $4 range.

Still, CMLS has a 1-year target price of $21.67. With Cumulus shares losing one-third of their value since the end of June, and Wall Street considering CMLS “overvalued,” the next few months could be challenging for investors.

The dip also erases any positive news on Wall Street surrounding Cumulus’ decision to add its AM and FM radio stations to the Audacy platform.

For Simply Wall St., some investors may be worried about Cumulus’ returns on capital.

In a report released this week, the financial blog notes, “A business that’s potentially in decline often shows two trends, a return on capital employed (ROCE) that’s declining, and a base of capital employed that’s also declining. This indicates the company is producing less profit from its investments and its total assets are decreasing. Having said that, after a brief look at Cumulus Media, we aren’t filled with optimism, but let’s investigate further.”

Cumulus Media has an ROCE of 2.5%. “In absolute terms, that’s a low return and it also under-performs the Media industry average of 9.6%,” Simply Wall St. says.

Also of concern: the amount of capital deployed in the business has shrunk by 46% over that same period, Simply Wall St. notes. “The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. Typically businesses that exhibit these characteristics aren’t the ones that tend to multiply over the long term, because statistically speaking, they’ve already gone through the growth phase of their life cycle.”