Sphere Entertainment Co (SPHR, Financial) recently experienced a daily loss of 3.51%, with a slight 3-month decline of 0.18%. Despite these fluctuations, the company boasts a notable Earnings Per Share (EPS) of 17.44. Investors and potential shareholders may ponder if the current stock valuation truly reflects the company's worth, especially when it is deemed Significantly Overvalued. This article delves into a valuation analysis that aims to uncover whether Sphere Entertainment Co's stock price is justified or if it deviates from its intrinsic value, inviting readers to explore the findings below.
Company Introduction
Sphere Entertainment Co is a dynamic live entertainment and media company, known for its innovative approach to creating, writing, casting, producing, and touring shows and events. Its portfolio includes Sphere, a cutting-edge entertainment medium, and operates across three reportable segments: Entertainment, MSG Networks, and Tao Group Hospitality. Currently, Sphere Entertainment Co's stock price stands at $34.05, with a market cap of $1.20 billion. However, the GF Value estimates the fair value at a significantly lower $20.86, suggesting a discrepancy that warrants a closer examination.
Summarize GF Value
The GF Value is a unique measure that estimates a stock's intrinsic value by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance projections. The GF Value Line indicates the stock's ideal trading value. When the stock price significantly exceeds the GF Value Line, it may be overvalued, indicating a potential decrease in future returns. Conversely, a price well below the line suggests undervaluation and the possibility of higher future returns. According to GuruFocus' valuation method, Sphere Entertainment Co appears to be significantly overvalued, with the stock's current price far above the GF Value Line.
Because Sphere Entertainment Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Link: These companies may deliver higher future returns at reduced risk.Financial Strength
Investors must consider a company's financial strength to avoid the high risk of permanent capital loss. Key indicators such as the cash-to-debt ratio and interest coverage can provide insights into this aspect. Sphere Entertainment Co has a cash-to-debt ratio of 0.34, ranking lower than 68.19% of its peers in the Media - Diversified industry. The company's overall financial strength has been rated as fair, with a score of 5 out of 10.
Profitability and Growth
Profitability is a crucial factor for investment safety. Sphere Entertainment Co has achieved profitability in 3 out of the past 10 years. With a revenue of $557.80 million and an Earnings Per Share (EPS) of $17.44 over the past twelve months, the company's operating margin stands at a concerning -45.89%. This places it lower than 87.84% of its industry counterparts. In terms of growth, the company's annual revenue growth rate is -26.3%, which is less than favorable when compared to its industry peers.
ROIC vs WACC
Evaluating a company's profitability can also be done by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). A company that has a higher ROIC than its WACC is generally creating value for its shareholders. Unfortunately, Sphere Entertainment Co's ROIC of -4.97 is less than its WACC of 5.31, indicating that the company may not be generating sufficient cash flow relative to its capital investment.
Conclusion
In conclusion, Sphere Entertainment Co (SPHR, Financial) appears to be significantly overvalued based on its current market price. The company's financial condition is fair, but its profitability is poor, and its growth is not competitive within the Media - Diversified industry. Those interested in learning more about Sphere Entertainment Co's financials can review its 30-Year Financials here.
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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.
