As of September 15, 2023, Lions Gate Entertainment Corp (LGF.B, Financial) recorded a daily gain of 4.67%, despite a 3-month loss of 10.25%. With a Loss Per Share of 8.61, the question arises: Is the stock modestly undervalued? This article aims to provide a comprehensive analysis of the valuation of Lions Gate Entertainment (LGF.B), offering valuable insights to potential investors.
About Lions Gate Entertainment Corp
Lions Gate Entertainment Corp is a prominent player in the entertainment business. The company primarily operates through its Motion Picture, Television Production, and Media Networks segments. The Television Production segment, which includes the development, production, and worldwide distribution of television productions, generates the majority of the company's revenue. As of the date of analysis, the stock price stands at $8.29 per share, with a market cap of $2 billion. Compared to the GF Value of $11.04, it appears that the stock might be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that estimates the intrinsic value of a stock, considering historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides a visual representation of the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on the GF Value calculation, Lions Gate Entertainment (LGF.B, Financial) appears to be modestly undervalued. Therefore, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength of Lions Gate Entertainment
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding whether to buy shares. Lions Gate Entertainment has a cash-to-debt ratio of 0.17, which ranks worse than 78.52% of 1001 companies in the Media - Diversified industry. This suggests a poor balance sheet and financial strength of 4 out of 10, as ranked by GuruFocus.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Lions Gate Entertainment has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $3.90 billion and a Loss Per Share of $8.61. Its operating margin is 3.97%, which ranks better than 53.09% of 1019 companies in the Media - Diversified industry. Overall, the profitability of Lions Gate Entertainment is ranked 5 out of 10, indicating fair profitability.
Growth is one of the most important factors in the valuation of a company. The average annual revenue growth of Lions Gate Entertainment is -1.8%, which ranks worse than 54.34% of 957 companies in the Media - Diversified industry. The 3-year average EBITDA growth is -59.3%, which ranks worse than 95.19% of 770 companies in the Media - Diversified industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Lions Gate Entertainment's ROIC was 1.81, while its WACC came in at 10.12.
Conclusion
In summary, the stock of Lions Gate Entertainment (LGF.B, Financial) appears to be modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 95.19% of 770 companies in the Media - Diversified industry. For more detailed financial information about Lions Gate Entertainment, you can check out its 30-Year Financials here.
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