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.
4. Fox Corporation (NASDAQ:FOX)
Fox Corporation is a mass media company that provides sports, news, and entertainment services. It operates in credible, cable network programming, television, and The Fox Studio Lot. The stock is up 59% in a year so some of the value has already been squeezed out. However, it still trades at a book value of just under 2.
During the last quarter, Fox has benefitted from its entry into sports streaming and should also get a significant boost from ad revenue during the election campaign. TV viewership in the US climbed 4% in the last month of 2024 according to Nielsen. While some of it was driven by the holiday season, it was the Giants vs Cowboys game that directly helped Fox benefit from the increased viewership. This was the most viewed NFL game in December so FOX continues to be a beneficiary of NFL popularity in the US.
3. Warner Bros. Discovery Inc. (NASDAQ:WBD)
Warner Bros. Discovery Inc. is an entertainment and media company that operates through network, DTC, and studio segments. The company produces and releases TV programs. It presents its content through various platforms including traditional TV channels, digital streaming services, linear networks, authenticated GO applications, and other platforms. The stock trades at a price-to-book value of 0.72 and has been trading at that level throughout the last year.
WBD doesn’t get as much attention as Netflix and Disney when it comes to streaming. That’s because it doesn’t make fresh content like Netflix does. This is a hard and capital-intensive job and it’s unlikely WBD will be able to pull it off. But the company has impressive IP including names like Harry Potter, Batman, and Game of Thrones among others. If it can find a way to repurpose this content and build on it, it could unlock some serious value.
More recently, the company is set to sell TVN Group, a leading Polish TV broadcaster, and has already received three different offers for the company. This would help the company simplify its structure and also pay off debt. On its Q3 earnings call in November, the company reiterated its plans to use its cash flows to pay off debt.
2. Sirius XM Holdings Inc. (NASDAQ:SIRI)
Sirius XM Holdings Inc. is a broadcasting company that provides audio entertainment services to subscribers. The company operates through Pandora & Off-platform and Sirius XM segments. It provides music, comedy talk, news, on-demand programming services, and other services. The stock trades at a price-to-book value of 0.69 and is extremely undervalued, though not without risks. These risks include expensive acquisitions as well as trying to stay relevant at a time when fewer and fewer people are using radios.
The biggest thing that the stock has going for it is that Warren Buffett continues to build a position in the stock. He now owns over 34% of the company! Investors who take a position in this undervalued stock do so because of the confidence that Buffett’s stake gives them. This isn’t necessarily a great strategy. However, the company is making efforts to improve its fundamentals, and the general consensus is that with Buffett’s backing, the company will be able to pull it off despite the risks.
1. Paramount Global (NASDAQ:PARA)
Paramount Global is an entertainment and mass media company that operates through filmed entertainment, TV media, and direct-to-consumer segments. Its TV media segment manages CBS stations, domestic premium & basic cable networks, CBS television network, and international extensions. The company’s stock is down 19% in the last year and currently trades at a price-to-book value of just 0.44.
Paramount Global continues to be in dispute with Nielsen over high fees since the expiry of their previous contract in October last year. It is likely to partner with Nielsen competitors going forward, which will help the company save fees. This is a big shift for the industry as alternatives like VideoAmp aren’t designed to operate at the same scale. However, the new scenario will likely result in more innovation and Paramount could find itself well-positioned for any future technology that might be adopted in the future.
Moreover, the company continues to generate healthy profits from its lucrative contracts including the NFL and March Madness. The profits from its sports segment and the cost-savings post Nielsen contract expiry will help improve the bottom line going forward, helping the company command a better valuation.
Paramount Global is not on our latest list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 44 hedge fund portfolios held PARA at the end of the third quarter which was 39 in the previous quarter. While we acknowledge the potential of PARA as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as PARA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
