2006 in Review: Entercom

Radio has become one of those industries that many investors have a hard time believing in as disruptive influences interfere with who's listening -- and who's advertising. Despite the phantom of weak growth, though, there has been some certain kind of interest. For example, Clear Channel (NYSE:CCU) recently agreed to be acquired in a private-equity buyout.

Now, let's tune in to radio company Entercom (NYSE:ETM) and see how it fared during 2006.

In the fourth quarter, Entercom reported net income down 19% to $15.8 million, or $0.35 per share, and sales down 6% to $103.7 million. The company said that the same quarter the previous year had benefited from political ad revenues, as well as 11 additional Boston Red Sox post-season games.

Entercom's first quarter contained more of the same downer news -- net income fell a whopping 52% to $7.8 million, or $0.19 per share. Sales fell 3% to $91.1 million.

Second-quarter profit at Entercom fell 29.6% to $17.1 million, or $0.43 per share, and revenue slipped 2.5% to $116.5 million.

That brings us to the most recent third quarter, when Entercom had more uninspiring financial news to report. Net profit decreased 27% to $16.2 million, or $0.41 per share. Sales slid 0.6% to $114.3 million. And a peek at its balance sheet revealed that while Entercom's cash may have increased 10% to $14.2 million, its debt spiked 34% to $661.2 million and free cash flow dropped 32%.

To bring us up to speed, Entercom bought several radio stations from CBS (NYSE:CBS) (formerly known as Infinity Broadcasting) for $262 million last summer, as well as one radio station from Radio One (NASDAQ:ROIA) for $30 million. Some Entercom shareholders may very well be wondering whether the company overpaid for them. Of course, it's strategically necessary for Entercom to build out its stations, but then again, let's hope it's done it in a fiscally responsible manner.

Entercom is a Motley Fool Income Investor recommendation, and it has a 5.3% dividend yield, a sweet deal for dividend-hungry investors. However, the radio industry isn't one that I personally would want to touch with a 10-foot pole right now. It faces serious disruption from the likes of satellite radio providers XM Satellite Radio (NASDAQ:XMSR) and Sirius (NASDAQ:SIRI), as well as technologies like streaming Internet radio and even the likelihood that some people might rather just listen to their Apple (NASDAQ:AAPL) iPods. It's one of those industries that faces some serious challenges in supplying investors with more than meager growth.

That's my opinion, of course, and I know many people believe such concerns about terrestrial radio are overblown. Plus, plenty of investors do well when they carefully choose companies in unloved industries at the right prices -- it can be lucrative to be a contrarian. Let's dial in to what the CAPS community has to say about Entercom.

As you can see, not too many CAPS players follow Entercom at all. Of the mere 12 players who have rated the stock, 67% believe it will outperform. With only 12 ratings and a mere 2 pitches, if you have an opinion on Entercom, it will more than likely be heard.

Although Entercom shares have risen 13.5% in the last three months, they've fallen 4.3% over the last year. Is Entercom underappreciated, or will 2007 show another year of down results? Tune in next year to find out.

Check out the other companies featured in "The Motley Fool's 2006 in Review and 2007 Preview" special.

Entercom is a Motley Fool Income Investor selection. With a return of 29.15%, that service has bested the S&P by 7.95%. XM Satellite Radio is a former Motley Fool Rule Breakers recommendation.

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Alyce Lomax does not own shares of any of the companies mentioned.