Lumen has had an impressive run over the past six months as its shares have beaten the S&P 500 by 15.6%. The stock now trades at $8.70, marking a 21.3% gain. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Lumen, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Lumen Will Underperform?
We’re happy investors have made money, but we're cautious about Lumen. Here are three reasons there are better opportunities than LUMN and a stock we'd rather own.
1. Revenue Spiraling Downwards
A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Lumen’s demand was weak and its revenue declined by 9.7% per year. This was below our standards and is a sign of poor business quality.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Lumen, its EPS declined by 15.8% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Lumen’s margin dropped by 10.5 percentage points over the last five years. Continued declines could signal it is in the middle of an investment cycle. Lumen’s free cash flow margin for the trailing 12 months was 8.4%.
Final Judgment
We cheer for all companies making their customers lives easier, but in the case of Lumen, we’ll be cheering from the sidelines. With its shares outperforming the market lately, the stock trades at 7.8× forward EV-to-EBITDA (or $8.70 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. We’d suggest looking at one of our top digital advertising picks.
High-Quality Stocks for All Market Conditions
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don't just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn't over. Find out which 9 stocks made the cut this week — FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+354% five-year return). Find your next big winner with StockStory today.
