Lions Gate Entertainment Corp (LGF.B, Financial) has seen a daily gain of 2.68% and a 3-month loss of 5.12%. With a Loss Per Share of 8.61, the question arises: Is the stock modestly undervalued? This article delves into a valuation analysis of Lions Gate Entertainment, providing valuable insights for potential investors.
Introduction to Lions Gate Entertainment
Lions Gate Entertainment Corp is an entity in the entertainment business. The company's operations span across Motion Picture, Television Production, and Media Networks, with the Television Production segment generating maximum revenue. Television Production encompasses the development, production, and worldwide distribution of television productions, including television series, television movies, mini-series, and non-fiction programming. Currently, Lions Gate Entertainment's stock price stands at $8.06, while its GF Value, an estimation of fair value, is $11.08.
Understanding the GF Value of Lions Gate Entertainment
The GF Value is a unique measure of a stock's intrinsic value. It is derived from historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the stock's fair trading value.
According to the GF Value, Lions Gate Entertainment (LGF.B, Financial) appears to be modestly undervalued. The stock's fair value is estimated based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. Given its current price of $8.06 per share, Lions Gate Entertainment stock is estimated to be modestly undervalued.
As Lions Gate Entertainment is relatively undervalued, 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 poor financial strength carries a higher risk of permanent loss of capital. Therefore, it is crucial to thoroughly review a company's financial strength before deciding to buy its stock. A great starting point for understanding the financial strength of a company is to look at the cash-to-debt ratio and interest coverage. Lions Gate Entertainment has a cash-to-debt ratio of 0.17, which ranks worse than 78.39% of companies in the Media - Diversified industry. GuruFocus ranks Lions Gate Entertainment's overall financial strength at 4 out of 10, indicating that the company's financial strength is poor.
Profitability and Growth of Lions Gate Entertainment
Investing in profitable companies carries less risk, especially those that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Lions Gate Entertainment has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $3.90 billion and a Loss Per Share of $8.61. Its operating margin of 3.97% is better than 52.46% of companies in the Media - Diversified industry. Overall, GuruFocus ranks Lions Gate Entertainment's profitability as fair.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Lions Gate Entertainment is -1.8%, which ranks worse than 54.4% of companies in the Media - Diversified industry. The 3-year average EBITDA growth rate is -59.3%, which ranks worse than 95.2% of companies in the Media - Diversified industry.
ROIC vs WACC of Lions Gate Entertainment
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Lions Gate Entertainment's return on invested capital is 1.81, and its cost of capital is 10.12.
Conclusion
In conclusion, the stock of Lions Gate Entertainment (LGF.B, Financial) is estimated to be modestly undervalued. The company's financial condition is poor, and its profitability is fair. Its growth ranks worse than 95.2% of 771 companies in the Media - Diversified industry. To learn more about Lions Gate Entertainment stock, you can check out its 30-Year Financials here.
To find out the high quality companies that may deliver above average returns, please check out the GuruFocus High Quality Low Capex Screener.
