iHeartMedia (IHRT): Buy, Sell, or Hold Post Q1 Earnings?

iHeartMedia trades at $4.44 and has moved in lockstep with the market. Its shares have returned 6.9% over the last six months while the S&P 500 has gained 8.5%.

Is now the time to buy iHeartMedia, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it's free.

We're sitting this one out for now. Here are three reasons you should be careful with IHRT, plus one stock we'd rather own.

A company's long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, iHeartMedia's sales grew at a weak 6.5% compounded annual growth rate over the last five years. This fell short of our benchmark for the consumer discretionary sector.

We like to invest in businesses with high returns, but the trend in a company's ROIC can also be an early indicator of future business quality.

Unfortunately, iHeartMedia's ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

iHeartMedia's $5.77 billion of debt exceeds the $135.1 million of cash on its balance sheet. Furthermore, its 8× net-debt-to-EBITDA ratio (based on its EBITDA of $673.8 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company's rating if profitability falls. iHeartMedia could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope iHeartMedia can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

We cheer for all companies serving everyday consumers, but in the case of iHeartMedia, we'll be cheering from the sidelines. That said, the stock currently trades at 7.9× forward EV-to-EBITDA (or $4.44 per share). While this valuation is reasonable, we don't see a big opportunity at the moment. There are better stocks to buy right now. We'd suggest looking at one of our top software and edge computing picks.

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