Entertainment stocks provide interesting investment opportunities. Unlike many other businesses, these companies allow the retail investor to have some association with the company that makes them feel a part of it. For example, Disney was a big part of many people’s childhood. Owning the company’s stock is often a way for them to not only honor the company but also feel a part of the company rather than just a viewer of its content.
At the same time, these stocks can also be prone to ups and downs, largely dependent on how the public perceives the content they make. If the content is loved, the company makes money and the stock goes up. If it doesn’t receive a good response from the public, the company can’t make enough money, resulting in a stock price decline. Regulatory risks, innovative technologies, and high production costs continue to plague the sector. However, these issues often bring the stock down to levels where investors would love to take a position in the stock.
We look at 6 such companies that are trading at a low valuation and are a steal at these levels. To come up with our list of 6 undervalued entertainment stocks, we considered stocks with a price-to-book value of below 3.0 and a market cap between $5 billion and $30 billion.
6. Endeavor Group Holdings Inc. (NYSE:EDR)
Endeavor Group Holdings Inc. is a leading sports and entertainment company that operates through events, experiences & rights, owned sports properties, sports data & technology, and representation segments. The company’s investment thesis revolves around one of its holdings, the TKO Group, which it has a 51% stake in.
Last year, there were rumors of the company going private but the arbitrage opportunity resulting from that transaction disappeared as the stock moved closer to the $30 mark. There is still reason to buy this stock though. The company’s stake in TKO Group is the ultimate value as the popularity of WWE and UFC doesn’t seem to be fading anytime soon. On top of that, Saudi Arabia’s interest in the fighting industry means the firm is a buyout target as well, though at this stage that is just speculation.
The company continues to trade at a lower valuation because holding companies often do so. However, due to the nature of their business and potential buyout, we consider it an undervalued company and one worth investing in.
5. News Corporation (NASDAQ:NWS)
News Corporation is an information services and media company that creates and delivers reliable and interesting content for businesses and consumers. It operates through Dow Jones, news media, book publishing, and other segments. The company trades at a price-to-book value of just above 2. The stock’s performance despite a low valuation is quite reasonable, with a 129% return in the last 5 years.
The company seems to be firing on all cylinders. While it continues to suffer from the decline in e-book sales, it is well-compensated by the rise in digital audiobook revenue. The Subscription Video Services also continue to go up while the most profitable parts of the business, the Dow Jones Energy and Risk & Compliance segments, continue to drive the major chunk of the profits.
Some of the shareholder value will be unlocked when the company closes its Foxtel sale later this year. It will receive 6% equity in the streaming giant DAZN as a result of the sale. The value of this equity may not be apparent right now as DAZN isn’t yet profitable. However, the heavy investments that the streaming company continues to make will eventually turn into profits, directly benefitting NWS investors.
Hedge Fund Resource Center