Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does World Wrestling Entertainment, Inc. (NYSE:WWE) fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.
What we’re looking for
The graphs you’re about to see tell World Wrestling Entertainment, Inc. (NYSE:WWE)’s story, and we’ll be grading the quality of that story in several ways:
Growth: Are profits, margins, and free cash flow all increasing?
Valuation: Is share price growing in line with earnings per share?
Opportunities: Is return on equity increasing while debt to equity declines?
Dividends: Are dividends consistently growing in a sustainable way?
What the numbers tell you
Now, let’s take a look at World Wrestling Entertainment, Inc. (NYSE:WWE)’s key statistics:
WWE Total Return Price data by YCharts
| Passing Criteria | 3-Year* Change | Grade |
|---|---|---|
| Revenue growth > 30% | (4.2%) | Fail |
| Improving profit margin | (69.1%) | Fail |
| Free cash flow growth > Net income growth | (100.8%) vs. (70.4%) | Fail |
| Improving EPS | (70.3%) | Fail |
| Stock growth (+ 15%) < EPS growth | (23.8%) vs. (70.3%) | Fail |
Source: YCharts. * Period begins at end of Q1 2010.
WWE Return on Equity data by YCharts
| Passing Criteria | 3-Year* Change | Grade |
|---|---|---|
| Improving return on equity | (65.8%) | Fail |
| Declining debt to equity | No debt | Pass |
| Dividend growth > 25% | (66.7%) | Fail |
| Free cash flow payout ratio < 50% | Negative FCF | Fail |
Source: YCharts. * Period begins at end of Q1 2010.
How we got here and where we’re going
World Wrestling Entertainment, or WWE to its shareholders and fans, takes a big piledriver to the mat in this assessment, as it earns only one of nine possible passing grades. A big source of that weakness is the company’s falling free cash flow, which has resulted in slashed dividend payments, and may result in more cuts to come if it can’t return to positive territory. Will World Wrestling Entertainment, Inc. (NYSE:WWE) be able to kick out of the three-count, or is it done for? Let’s dig a little deeper to find out.
Entertainment companies are powerhouses of intellectual property, and they are able to draw on decades of characters, and make profits even during bad times by rehashing old stories or rereleasing old material. When World Wrestling Entertainment, Inc. (NYSE:WWE) has a big hit on its hands, it can virtually mint money. Unfortunately, that hasn’t been much the case lately, as the company’s biggest promotion over the past year was the return of former superstar and current movie star The Rock, who can’t be expected to headline live events all the time as his star continues to rise in Hollywood. As the de facto kingpin of synthetic athletic contests, World Wrestling Entertainment, Inc. (NYSE:WWE) has a pretty solid moat, but there’s always a risk of viewer apathy, as has occurred several times in the past.
