The stock of World Wrestling Entertainment (NYSE:WWE, 30-year Financials) is believed to be modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $56.62 per share and the market cap of $4.3 billion, World Wrestling Entertainment stock is believed to be modestly undervalued. GF Value for World Wrestling Entertainment is shown in the chart below.
Because World Wrestling Entertainment is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 4.3% over the past three years and is estimated to grow 7.65% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. World Wrestling Entertainment has a cash-to-debt ratio of 0.74, which ranks in the middle range of the companies in the industry of Media - Diversified. Based on this, GuruFocus ranks World Wrestling Entertainment's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of World Wrestling Entertainment over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. World Wrestling Entertainment has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $946.7 million and earnings of $1.76 a share. Its operating margin is 23.27%, which ranks better than 90% of the companies in the industry of Media - Diversified. Overall, the profitability of World Wrestling Entertainment is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of World Wrestling Entertainment over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of World Wrestling Entertainment is 4.3%, which ranks better than 69% of the companies in the industry of Media - Diversified. The 3-year average EBITDA growth rate is 21.4%, which ranks better than 74% of the companies in the industry of Media - Diversified.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, World Wrestling Entertainment's ROIC is 17.65 while its WACC came in at 9.54. The historical ROIC vs WACC comparison of World Wrestling Entertainment is shown below:
In closing, The stock of World Wrestling Entertainment (NYSE:WWE, 30-year Financials) is believed to be modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 74% of the companies in the industry of Media - Diversified. To learn more about World Wrestling Entertainment stock, you can check out its 30-year Financials here.
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