On August 5, 2023, Paramount Global (PARA, Financial) reported a daily gain of 3.58%, despite a Loss Per Share of 0.78. Given these figures, is the stock a potential value trap? This article provides a thorough valuation analysis to answer this question. Read on to delve into Paramount Global's financial performance and intrinsic value.
Company Overview
Paramount Global, formerly known as the recombination of CBS and Viacom, is a global media conglomerate. The company operates a number of leading cable network properties, including 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 also operates streaming services, most notably Paramount+ and Pluto TV.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. This value is computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line indicates the stock's ideal fair trading value.
For Paramount Global (PARA, Financial), the GF Value suggests a possible value trap scenario. This assessment is based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns. With its current price of $15.63 per share and a market cap of $10.3 billion, Paramount Global's stock may be a potential value trap.
Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. It's crucial to review a company's financial strength before deciding to buy its stock. A useful starting point is the cash-to-debt ratio and interest coverage. Paramount Global's cash-to-debt ratio of 0.12 is worse than 85.21% of companies in the Media - Diversified industry. GuruFocus ranks Paramount Global's overall financial strength at 4 out of 10, indicating poor financial strength.
Profitability and Growth
Consistent profitability over the long term offers less risk for investors. Paramount Global has been profitable 10 out of the past 10 years. 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%, ranking worse than 52.36% of companies in the Media - Diversified industry. Overall, Paramount Global's profitability is ranked 7 out of 10, indicating fair profitability.
Growth is a crucial factor in a company's valuation. The 3-year average annual revenue growth rate of Paramount Global is 2%, ranking better than 56.22% of companies in the Media - Diversified industry. However, the 3-year average EBITDA growth rate is -18.9%, ranking worse than 78.91% of companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and weighted average cost of capital (WACC) can provide insights into its profitability. For the past 12 months, Paramount Global's ROIC is 1.14, and its cost of capital is 6.98.
Signs of a Potential Value Trap
The assessment of Paramount Global as a potential value trap is based on its Piotroski F-score of 2 out of 9, indicating potential concerns with profitability, funding, and efficiency. To understand the Piotroski F-score better, click here. Additionally, the Altman Z-score of 1.08 places Paramount Global in the distress zone, signaling an increased bankruptcy risk. Learn more about the Altman Z-score here.
Conclusion
In conclusion, Paramount Global (PARA, Financial) is considered 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, check out its 30-Year Financials here.
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