The telecom sector has long been a cornerstone of the global economy, providing essential connectivity and communication services that drive both personal and professional interactions. Telecom’s importance was underscored during the COVID-19 pandemic, particularly as many workers across the professional services sector had to work from home. This created significant demand for telecommunications products as well as cloud-based services. Inflation and the high interest rates have also taken their toll on the broader telecom space. Not only did telecom companies purchase a ton of equipment due to fears around supply chain-induced scarcity but also many telecom companies have struggled to invest into new projects because debt-financing is as expensive as it these days.
A slowdown in new projects as well as high interest rates have created new risks for certain telecom stocks. Sales and earnings growth are harder to come by, for example. Below are 3 stocks of which to avoid in July before they potentially crash and burn.
Vodafone Group (VOD)
Headquartered in Great Britain, Vodafone Group (NYSE:VOD) is a multinational business that offers telecommunications services in Great Britain and Germany as well as other parts of Western Europe, Turkey, and Africa. These services include mobile connectivity, cloud and edge computing, and business internet-of-things (IoT) solutions. Being both a consumer and enterprise-facing business, Vodafone has, in the past, been able to position itself to catch onto many of the major digital tailwinds of the last couple of decades.
However, in recent years, Vodafone had been plagued with struggling subsidiary businesses. For example, the telecom services provider’s Spanish and Italian business units had been struggling so much and had been such a drag on growth that Vodafone decided to sell them. Vodafone sold its Spain-based business in fourth quarter of last year and just finished selling its Italy Business in the first quarter of 2024.
The business is still going through an immense amount of restructuring and despite a good earnings report recently, VOD’s share price could tumble if the macroeconomic environment, especially in the Eurozone, doesn’t improve.
Actelis Networks (ASNS)
Our next telecom stock to sell is Actelis Networks (NASDAQ:ASNS), which has a business with a particular IoT flavor. In essence, Actelis Networks develops and manufacturers “cyber hardened,” hybrid fiber, networking solutions for IoT and telecommunication companies across the globe from North America and Europe to the Middle East and the Asia Pacific. When a network is described as “cyber-hardened,” this refers to the way in which the developer of the network leverages cybersecurity systems to reduce any vulnerabilities. Because Actelis Networks delivers its wide-area IoT networking solutions to federal, state, and local governments, employing robust cybersecurity measures is important.
Unfortunately, Actelis has also been going through a risky strategic shift. The company used to focus on providing telecom services, but, in 2023, Actelis decided to invest in its new IoT solutions and began the process of exiting the telecom business. As a result, full-year revenue in 2023 declined by 36.5% to $5.6 million. In the first quarter of fiscal year 2024, Actelis reported further year-over-year revenue decline as there was a delay in the delivery of a customer order.
All of this points to a company in dire straits, and investors are probably better off avoiding it. Trading at under $2/share, ASNS’s heightened volatility also makes the stock not worth holding.
Frontier Communications (FYBR)
Frontier Communications (NASDAQ:FYBR) makes our final entry on this telecom stocks to sell list. Based in Dallas, Texas, Frontier provides communication and technology services primarily in the United States. In particular, the company offers broadband networking services, unified communications services as well as hardware and network solutions to large enterprise customers, small and medium businesses, and wholesale customers. In the first quarter of 2024, Frontier grew total revenue a tepid 1.5% YOY to $1.5 billion. Still, what investors focused on was Frontier’s strides in growing its fiber broadband business, which happened to be a bright spot. Most of the top-line growth in the first quarter had been attributable to strong growth in the company’s fiber broadband revenue, which accelerated 24% from the same period in 2023.
Despite decent earnings results, however, Frontier’s share price is still in a shaky spot. The broadband provider’s forward-looking P/E ratio is definitely off the charts, and as investors begin rebalancing their risk exposure, Frontier’s relatively high sends its share plunging.
On the date of publication, Tyrik Torres did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or
indirectly) any positions in the securities mentioned in this article.
