Comcast’s (NASDAQ:CMCSA) very existence is an insult to the idea of free markets. After all, if my experience with the company is any indication of what others experience, its prices have risen as its service quality has deteriorated. My bill has risen from less than $100 a month to about $129 while the frequency of its service outages and technical failures remains as high as ever.

And yet Comcast is enjoying very rapid growth. For example, in the first six months of 2011, its revenues grew 41% — helped by its January 2011 acquisition of 51% of NBC Universal — while its net operating profit after tax spiked 29%. I would like to think that such impressive operating performance would result from providing better service quality. But when you have two monopolies fighting for content, Internet and telephone service to your home, you can negotiate pretty profitable deals with content suppliers and still force locked-in subscribers to pay higher rates.

This sounds like a recipe for investment profit. But should you buy Comcast shares?

Here are four reasons to consider buying them:

• Reasonable valuation. Comcast’s price/earnings-to-growth ratio of 0.81 (where a PEG of 1.0 is considered fairly priced) means its stock price is pretty cheap. It currently has a P/E of 15.03 and is expected to grow 18.5% to $1.89 in 2012.
• Decent dividend. Comcast has a 2.19% dividend yield — well above the typical 0.4% interest rate you get on a bank account.
• Expectations-beating earnings reports. Comcast has been able to beat analysts’ expectations in all of its past five earnings reports. In its most recent report, its 42 cents per share beat by a penny.
• Rising sales and profits and a stronger balance sheet. Comcast has been growing with declining margins. Its $38 billion in revenues have grown at an average rate of 11% over the past five years while its net income of $3.64 million has slipped at a 12.9% annual rate over that period — yielding a solid 10% net profit margin. Its cash has grown almost 14 times faster than its debt. Specifically, its debt has inched up at a 1.4% annual rate, from $28 million (2006) to $29.6 billion (2010), while its cash has surged at a 19.4% annual rate, from $3 billion to $6.1 billion in those years.

One reason to avoid Comcast stock:

• It’s under-earning its cost of capital — and getting worse. Comcast is earning less than its cost of capital — and its performance is weakening. How so? It produced negative EVA momentum, which measures the change in “economic value added” (essentially, after-tax operating profit after deducting capital costs) divided by sales. In the first six months of 2011, Comcast’s EVA momentum was -6%, based on first six months’ 2010 annualized revenue of $37.5 billion, and EVA that fell from -$7.4 billion annualizing the first six months of 2010 to -$9.4 billion annualizing the first six months of 2011, using an 11% weighted average cost of capital.

Comcast’s growth is unstoppable — even lousy customer service and an inability to earn more than its cost of capital can’t stop the economic power of an oligopoly that locks in its customers while raising their rates.

Peter Cohan has no financial interest in the securities mentioned.