On July 19, 2023, the stock price of Warner Bros. Discovery Inc (WBD, Financial) saw a change of 3.99%, reaching a price of $13.28. With a market cap of $32.4 billion and sales reaching $41.4 billion, the company's GF Value stands at $24.35. According to GuruFocus, the company's valuation suggests it might be a possible value trap, urging investors to think twice.
Warner Bros. Discovery, a merger of two prominent media firms, has become one of the world's largest media companies with considerable scale and reach. The company boasts global networks like HBO, Discovery, CNN, and TLC, along with popular franchises such as Superman, Rick and Morty, and Game of Thrones. Its content production studios include Warner Bros., HBO, Discovery Studios, DC Films, and Cartoon Network Studios. The company operates two major streaming services, Max and Discovery+.
Value Assessment
The GF Value, an estimation of a stock's fair value, suggests that Warner Bros. Discovery (WBD, Financial) might be a value trap. The company's Beneish M-Score of -0.41, higher than -1.78, indicates potential manipulation. Moreover, an Altman Z-score of 0.31 suggests the company is in the distressed zone, implying a higher risk of bankruptcy. An Altman Z-score above 2.99 would indicate safer financial conditions. For a better understanding of the Z-score's role in assessing financial risk, please click here.
Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, understanding a company's financial strength is crucial before deciding to invest. Warner Bros. Discovery's cash-to-debt ratio of 0.05 is worse than 90.72% of companies in the Media - Diversified industry, indicating poor financial strength.
Profitability
Warner Bros. Discovery has been profitable 8 out of the past 10 years. Over the past year, the company reported a revenue of $41.4 billion and an EPS of $-3.71. Its operating margin is -10.36%, ranking worse than 74.29% of companies in its industry. However, the company's overall profitability is strong, ranking 8 out of 10.
Growth
Warner Bros. Discovery's average annual revenue growth is 3.6%, ranking better than 61.72% of companies in the Media - Diversified industry. However, its 3-year average EBITDA growth is -10.2%, ranking worse than 69.62% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can help assess its profitability. For the past 12 months, Warner Bros. Discovery’s ROIC is -3.3, and its WACC is 8.63, suggesting the company is not creating value for shareholders.
Conclusion
In conclusion, Warner Bros. Discovery (WBD, Financial) appears to be a potential value trap. Despite its strong profitability, the company's financial condition is poor and its growth ranks worse than 69.62% of companies in the Media - Diversified industry. To learn more about Warner Bros. Discovery stock, you can check out its 30-Year Financials here.
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