Paramount Global (PARA, Financial)'s stock demonstrated a gain of 4.14% recently, despite a reported Loss Per Share of $0.78. This raises an intriguing question: is the stock a possible value trap? This article delves into the valuation analysis of Paramount Global, offering a comprehensive understanding of its financial status and inherent risks.
Company Overview
Paramount Global, the result of a recombination of CBS and Viacom, is a global media conglomerate. CBS's contribution includes Showtime, the CBS television network, 28 local TV stations, and 50% of CW, a joint venture with WarnerMedia. Viacom, on the other hand, brought leading cable network properties such as Nickelodeon, MTV, BET, Comedy Central, VH1, CMT, and Paramount. Paramount Pictures, a subsidiary, produces original motion pictures and owns a library of 2,500 films, including the Mission: Impossible and Transformers series. Paramount operates several streaming services, notably Paramount+ and Pluto TV.
With a current stock price of $15.72 per share, Paramount Global has a market cap of $10.4 billion. However, the GF Value, a proprietary measure of a stock's intrinsic value, stands at $33.2, indicating a potential discrepancy between the market price and the estimated fair value.
Understanding the GF Value
The GF Value represents an exclusive method to estimate the intrinsic value of a stock. It considers historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. 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 GuruFocus Value calculation, Paramount Global's stock is estimated to be a possible value trap. With a market cap of $10.4 billion and a current price of $15.72 per share, investors should tread carefully.
Financial Strength Evaluation
Companies with poor financial strength pose a high risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before purchasing shares. Paramount Global has a cash-to-debt ratio of 0.12, ranking worse than 85.21% of companies in the Media - Diversified industry. This indicates that the financial strength of Paramount Global is poor, with a score of 4 out of 10.
Profitability and Growth Assessment
Investing in profitable companies poses less risk, especially those demonstrating consistent profitability over the long term. Paramount Global has been profitable 10 years over the past decade. Over the past twelve months, the company had a revenue of $30.1 billion and a Loss Per Share of $0.78. Its operating margin is 2.47%, which ranks worse than 52.46% of companies in the Media - Diversified industry. Overall, GuruFocus ranks Paramount Global's profitability at 7 out of 10, indicating fair profitability.
Long-term stock performance is closely correlated with growth. Paramount Global's average annual revenue growth is 2%, ranking better than 56.22% of companies in the Media - Diversified industry. However, the 3-year average EBITDA growth is -18.9%, ranking worse than 78.91% of companies in the same industry.
ROIC vs WACC
Another measure of a company's profitability is the comparison of its return on invested capital (ROIC) and the 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. For the past 12 months, Paramount Global's ROIC is 1.14, and its cost of capital is 6.98.
Identifying a Potential Value Trap
Despite signs of potential undervaluation, Paramount Global's stock might be a value trap. With a Piotroski F-score of only 2 out of a possible 9, there are potential concerns of a downward trend in profitability, funding, and efficiency. Furthermore, the Altman Z-score stands at 1.08, placing the company's financial health in the distress zone and signalling an increased bankruptcy risk.
Conclusion
Overall, Paramount Global (PARA, Financial) stock is estimated to be a potential value trap. The company's financial condition is poor, and its profitability is fair. Its growth ranks worse than 78.91% of companies in the Media - Diversified industry. To learn more about Paramount Global stock, you can check out its 30-Year Financials here.
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