The stock market is a dynamic arena, with company valuations constantly in flux. For investors analyzing Lions Gate Entertainment Corp (LGF.B, Financial), recent movements present an intriguing picture: a daily gain of 5%, a three-month gain of 30.58%, juxtaposed against a Loss Per Share of $4.45. These figures raise a pivotal question: is Lions Gate Entertainment fairly valued? The following analysis delves into this question, providing investors with a clearer understanding of the company's current market position.
Company Introduction
Lions Gate Entertainment Corp (LGF.B, Financial) is a prominent player in the entertainment industry, with its operations spanning Motion Picture, Television Production, and Media Networks. The company's Television Production segment, which includes the development, production, and global distribution of TV series, movies, mini-series, and non-fiction programming, generates the majority of its revenue. In evaluating Lions Gate Entertainment's stock, which is currently priced at $10.29 per share and has a market cap of $2.50 billion, it is crucial to compare it to the GF Value—an estimate of its fair value—to gain insights into its valuation.
Summarize GF Value
The GF Value is a unique measure, reflecting the intrinsic value of a stock based on historical trading multiples, an adjustment factor for past performance and growth, and future business performance estimates. The GF Value Line, a visual representation of this fair value, serves as a benchmark for investors. If a stock trades significantly above this line, it may be overvalued, suggesting a potentially lower future return. Conversely, trading below the line could indicate undervaluation and the prospect of higher future returns.
Lions Gate Entertainment (LGF.B, Financial) appears to be fairly valued according to the GF Value, suggesting that its stock price is in line with the company's intrinsic value. With a GF Value of $10.85, the stock's current price of $10.29 suggests that investors could expect a long-term return that closely mirrors the company's business growth rate.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Assessing a company's financial strength is vital before investing. Lions Gate Entertainment's cash-to-debt ratio stands at 0.12, which is lower than 83.94% of its peers in the Media - Diversified industry. This suggests a higher risk of permanent loss due to its poor financial strength, which is rated 3 out of 10.
Profitability and Growth
Consistent profitability is a hallmark of a less risky investment. Lions Gate Entertainment has achieved profitability in 5 out of the past 10 years. With a $4 billion revenue and a Loss Per Share of $4.45 over the past twelve months, the company's operating margin of 6.25% is commendable, ranking better than 60.08% of its industry counterparts. However, its overall profitability score is 5 out of 10, suggesting only fair profitability.
The company's growth trajectory is another key valuation aspect. Lions Gate Entertainment's average annual revenue growth rate of -1.8% is below the median for its industry, and its 3-year average EBITDA growth rate of -59.3% is significantly lower than its peers, indicating challenges in creating value for shareholders.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) provides insight into its profitability relative to the capital invested. Lions Gate Entertainment's ROIC of 3.15% is below its WACC of 8.08%, suggesting that it may not be creating sufficient value for its shareholders.
Conclusion
In summary, Lions Gate Entertainment (LGF.B, Financial) is currently trading at a price that reflects its fair value. Despite this, the company's financial condition is poor and its profitability is only average. Moreover, its growth ranks unfavorably compared to its industry peers. For a more detailed financial analysis of Lions Gate Entertainment, interested investors can review its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
