Feeling The Movie Frenzy? Invest in the Movie Makers
Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With the Oscars having just wrapped up I can safely assume that many of you are feeling the movie spirit, and you probably want to check out some of the winners, head to the theater to see what else is out, or find a Redbox to pick something random up to watch. Well, the companies that make the movies you and I watch are, for the most part, publicly traded, and you could grab yourself a slice of the Hollywood pie with one simple investment.
Lions Gate Entertainment (NYSE: LGF) has been on a tear lately. The company has had some very successful movies out over the past couple of years, including the Twilight series and the Hunger Games movies, of which there are still more to come. The company's has risen close to 130% over the last five years, and is right around the 50% mark this year alone.
Being that Lions Gate is in the movie business, it comes with some fluctuations in earnings. These companies have to spend money on acquiring the best IPs and then providing the IPs with reasonable budgets to pull off an excellent movie and still make a profit--it’s a tough business. Luckily, Lions Gate has been doing quite well, and while their earnings have jumped around, they’re still making money year after year.
The current P/E at Lions Gate is 74, a number that is obviously on the high side. Earnings are expected to be growing over the next few years though, especially as the company continues to mature their product line.
Walt Disney Co (NYSE: DIS) is obviously a lot more diverse than Lions Gate. The company is involved in everything from movies to sports to theme parks, and is the definition of a diversified media conglomerate.
When it comes to movies, you’ll find Disney focusing on the family. The company owns Pixar, Marvel, and now Lucas Film. Those three companies combined create one of the biggest character stables in the entire world.
Disney won’t provide the types of returns that a company like Lions Gate can because they’re a lot bigger, and a lot more stable. They do, however, pay a dividend. It is currently a yearly dividend that yields 1.4%, which is nothing to scoff at.
Disney has a P/E ratio of 17.5, a low LT debt to equity ratio at 0.49, and an 18.9% pre-tax margin over the five-year average.
DreamWorks Animation (NASDAQ: DWA) is in the business of making animated movies. Titles such as Kung Fu Panda, Shrek, and Madagascar are the keep this company running and making money over the long term. DreamWorks is a little unique when compared to the other movie companies, though, in that they focus on animation. Animation has a much longer turnaround, and can cost much more than regular movies to make.
DreamWorks has a 20.7 P/E ratio, a figure that is outpacing the S&P 500 but is right in line for this company and its growth prospects going into the future. As animation gets easier and faster, the creative minds at DreamWorks will keep the content flowing into the Cinemarks and the AMCs, all while continuing to make heaps of cash.
The price to tangible book at DreamWorks is at 1.18, a pretty good pricing by my books, and the company is also carrying no debt.
So Should You Buy Them?
The movie business is definitely a turbulent one. No one knows for sure that people will actually turn up to see the movie, even if they have become pretty good at getting the numbers right. For that reason you’ll have to hang on to these studios over the long haul.
When it comes to Lions Gate and DreamWorks you would definitely want to make sure that you plan to hold these companies through thick and thin. Both of them, provided you do a little more due diligence, could be worthy of your long-term investment.
Disney falls into a different category that the other two in that its business is incredibly diverse. If you want exposure to the movie business then I don’t think that you could go wrong with Disney.
Ash1402 owns shares of Walt Disney. The Motley Fool recommends DreamWorks Animation and Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!