While World Wrestling Entertainment, Inc. (NYSE:WWE) might not be the most widely known stock at the moment, it led the NYSE gainers with a relatively large price hike in the past couple of weeks. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s examine World Wrestling Entertainment’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Is World Wrestling Entertainment still cheap?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that World Wrestling Entertainment’s ratio of 32.93x is trading slightly below its industry peers’ ratio of 37.62x, which means if you buy World Wrestling Entertainment today, you’d be paying a decent price for it. And if you believe World Wrestling Entertainment should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Is there another opportunity to buy low in the future? Since World Wrestling Entertainment’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of growth will World Wrestling Entertainment generate?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 46% over the next couple of years, the future seems bright for World Wrestling Entertainment. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? WWE’s optimistic future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at WWE? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?
Are you a potential investor? If you’ve been keeping tabs on WWE, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for WWE, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
So while earnings quality is important, it's equally important to consider the risks facing World Wrestling Entertainment at this point in time. Case in point: We've spotted 2 warning signs for World Wrestling Entertainment you should be aware of.
If you are no longer interested in World Wrestling Entertainment, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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