As of July 19, 2023, Paramount Global (PARA, Financial) is trading at $16.04 per share, marking a 3.35% change for the day. With a market capitalization of $10.6 billion, the company's GF Value stands at $33.22, hinting at the possibility of a value trap. This article aims to delve into the financial health and intrinsic worth of Paramount Global, providing insights to potential investors.
Paramount Global, a rebranded fusion of CBS and Viacom, is a global media conglomerate. Its extensive portfolio includes CBS television network, Showtime, Nickelodeon, MTV, BET, Comedy Central, VH1, CMT, and Paramount, among others. Paramount Pictures, part of the conglomerate, produces original motion pictures and owns a library of 2,500 films, including the Mission: Impossible and Transformers series. Paramount also operates streaming services like Paramount+ and Pluto TV.
GF Value: A Closer Look
The GF Value of a stock provides an estimation of its fair value, calculated based on historical trading multiples, GuruFocus' adjustment factor, and future business performance estimates. If a stock's price significantly exceeds the GF Value Line, it is potentially overvalued. Conversely, if it is significantly below the GF Value Line, its future return is likely to be higher. For Paramount Global, the current price of $16.04 per share suggests a possible value trap scenario.
Financial Strength and Profitability
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial health pose a higher risk of permanent loss. Paramount Global's cash-to-debt ratio stands at 0.12, worse than 84.96% of companies in the Media - Diversified industry. This indicates Paramount Global's financial strength is relatively poor.
Profitability is another key aspect to consider. Paramount Global has been profitable 10 times over the past 10 years. With a revenue of $30.1 billion and an EPS of $-0.78 over the past twelve months, its operating margin is 2.47%, ranking lower than 52.61% of companies in the Media - Diversified industry.
Growth and Return on Invested Capital (ROIC)
Growth is a critical factor in a company's valuation. Paramount Global's 3-year average annual revenue growth rate is 2%, ranking better than 56.15% of companies in the Media - Diversified industry. However, its 3-year average EBITDA growth rate is -18.9%, ranking worse than 79.4% of companies in the industry.
Comparing a company's ROIC with its weighted average cost of capital (WACC) can also provide insights into its profitability. Paramount Global's ROIC stands at 1.14, while its WACC is 6.87, indicating a potential issue in creating value for shareholders.
Conclusion
In conclusion, the stock of Paramount Global (PARA, Financial) shows signs of being a possible value trap. Despite its fair profitability, the company's financial condition is poor, and its growth ranks lower than most companies in the Media - Diversified industry. For a more comprehensive understanding of Paramount Global's financials, you can check out its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, check out the GuruFocus High Quality Low Capex Screener.
