The Nasdaq Composite, in general, performed well in February, with the index rising nearly 5% in value. More Nasdaq-listed stocks reached 52-week highs than 52-week lows last month, but at least two stocks saw their floors collapse, losing one-fifth of their value during the shortest month of the year.
Is now the time to buy the Nasdaq's two worst performers of February?
1. Charter Communications is going through a crisis
Charter Communications (CHTR -0.89%), which serves millions of customers throughout the U.S. with broadband and cable services under the Spectrum banner, saw its shares shed 22% of their value in February. This wasn't the company's first difficult month. Two years ago, its stock price was nearly 2.5 times higher than today.
The primary challenge is obvious: The company is losing subscribers. During the fourth quarter, Charter experienced a net loss of 61,000 internet customers. New customer additions only totaled 155,000 subscribers, a tiny fraction of the company's historical results.
Despite the net subscriber loss, Charter still was able to post revenue growth of 0.3% year over year for the quarter, partially fueled by strength in its mobile phone service division. Still, that growth rate was the lowest in years.
Charter operates a high-fixed-cost business that's capital intensive. The company must spend billions to build new infrastructure and acquire a huge number of customers to make the expense worthwhile.
The company isn't in danger of going out of business, serving 32 million customers across 41 states, but a reduction in subscriber growth has put a strain on Charter's financials. Free cash flow peaked back in 2022, with the stock's valuation falling in tandem.
CHTR Price to Free Cash Flow data by YCharts.
Why is Charter facing such difficulties?
The primary challenge is competition. There are many new competitors able to bypass Charter's physical infrastructure advantage.
Starlink and mobile phone networks, for example, are now able to deliver high-speed internet to nearly every home in the U.S., all without a pricey fiber network. Services like Netflix and Disney's Hulu, meanwhile, are able to stream video content directly to consumers without needing a cable hookup.
Notably, the company announced that capital expenditures would be trending down in future years, from around $12 billion this year to only $8 billion in 2027. That may help balance declining free cash flow, but it's a strong sign that the company's core business model is broken. It no longer makes sense for Charter to build the infrastructure its profits rely on.
Perhaps shares will become cheap enough to warrant buying a declining business, but Charter currently faces a scary future. The company has $98 billion in debt versus a $48 billion market cap, so it's wise to leave this mess to other investors.
2. Atlassian stock could be worth the gamble
Shares of Atlassian (TEAM -1.62%) stumbled in February, losing around 18% of their value. Like Charter, Atlassian has struggled with declining revenue growth rates. Unlike Charter, however, growth rates remain in the double digits.
Shares began their February slide at the start of the month when the company disclosed its quarterly results. They were below analyst expectations, but there's reason to believe the long-term growth story remains on track.
As its TEAM ticker suggests, Atlassian designs products that help teams collaborate online. Its Jira software, for example, helps teams track and respond to open tickets. The company has dozens of collaboration products like this, including Confluence, which tracks content production, and Trello, a popular project management tool.
Atlassian's cloud-based tools are powerful efficiency and productivity boosters for its 300,000 customers. The continued rise of remote work, especially in collaboration-heavy roles like design and programming, should give the company a tailwind of growth.
Last quarter, however, Atlassian posted its slowest revenue growth in years, but it wasn't alone. Many other software-as-a-service (SaaS) providers posted a dip in sales growth.
The company also faces mounting competition from well-funded players including Microsoft and Salesforce. Atlassian's valuation multiples have compressed to reflect this reality, but shares still trade at a lofty 13.7 times sales.
TEAM Market Cap data by YCharts.
Is Atlassian stock a buy after the sharp dip in price last month? There are two reasons to be bullish.
First, Atlassian's end markets continue to grow at double-digit rates. Gartner projects enterprise spending on software to grow by 14% in 2024, up from 13% the year before. The company should be able to surpass market growth, given that its particular category is experiencing higher growth rates, but these figures provide a rising floor for results.
Second, Atlassian continues to invest heavily in research and development (R&D). Last quarter, R&D expenses were equal to around 50% of the company's total sales, more than twice the spending of some competitors.
Elevated spending could be for naught if Atlassian's products don't continue to command additional market share. But when it comes to betting on growth stocks, it often pays to pick companies that reinvest heavily in future growth.
Atlassian shares still aren't screaming cheap following February's decline, but this looks like an attractive entry point for aggressive growth investors looking to bet on a former market darling.
