Dream on, Lady Stark
While Time Warner Inc. (NYSE:TWX) has many different operations, it seems this company lives and dies not by the sword, but rather by subscriptions.
In fact, if you were to look at a 10-year chart you’d notice tell-tale signs of Sex and the City and The Sopranos, both produced for Home Box Office (HBO) gaining popularity as subscription rates rose steadily from 1998 (Sex in the City) and 1999 (The Sopranos.)
Well, HBO is at it again. That subscription channel that first brought you original programming back in 1990 with Dream On has hit paydirt with Game of Thrones.
The buzz is hard to ignore. References to the series are appearing in major news articles, twitter feeds, and all over my friend’s Facebook pages. The DVD’s at every major store I visited in the last few days were completely sold out. I personally witnessed frantic mothers who were seeking this key last-minute Father’s Day gift only to leave empty handed.
Looking at some key statistics, we see a fairly-valued company with a 17 price-to-earnings ratio versus an industry average of 22. An acceptable long-term debt/equity ratio of 0.64 coupled with a net profit margin of 11.00% this last year are attractive. But the best part is that forward-looking estimates project a 30% earnings increase year-over-year, making for a forward price-to-earnings ratio of 13.60. This means that the best is yet to come if these projections hold.
However, the one caveat for HBO is that future programming of such fine quality isn’t easy to create or produce. The company must continue to represent the absolute pinnacle of programming if it expects people to pay the subscription price. If a content doldrum begins to manifest, like that which appeared following the resolution of Sex and the City and The Sopranos, investors will begin to bail fast and subscription rates will surely decline.
Conclusion
Consumers will always pay fair money for quality products. So will investors. These three companies represent three different niches in the entertainment industry. Their commonalities are great management, superb current and future products, attractive balance sheets, and stock prices that are acceptable entry levels for the long-term investor. For secure investments, The Walt Disney Company (NYSE:DIS) and CBS Corporation (NYSE:CBS) look fantastic. For a bit more speculation perhaps Time Warner Inc. (NYSE:TWX) might be the right call. Remember, Time Warner Inc. (NYSE:TWX) went up almost 800% in just 18 months during the introduction of Sex and the City and The Sopranos. A risk/reward ratio like that is hard to ignore for the adventurous investor.
James Catlin has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of The Walt Disney Company (NYSE:DIS).
The article How a Mouse, a Moon, and Medieval Mayhem can Make You Money originally appeared on Fool.com.
James is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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