Are These TV Broadcasters Good Deals or Value Traps?

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Have you ever looked at a low P/E ratio and wondered if it was a good deal or just properly priced for how the company's actually doing? I obsess over if what looks like a "good deal" is really just a load of BS. So I'm going to take a look at a few of the lowest-P/E companies in the TV broadcasting industry. Hopefully I'll find some win amongst the fail... or maybe I'll be pleasantly surprised as I've been so many other times.

Not Quite Shooting for the Stars

Gray Television (NYSE: GTN) owns 36 stations and is the largest independent CBS affiliate owner in the US. As a group, Gray's stations reach more than 6% of every household in the US, and I like the moat that this level of saturation tends to produce. While I like this degree of market share and the 3.76 P/E ratio, I'm not a huge fan of the 10.4% profit margin. It's better than nothing, but it could be seriously better. I'm also not too big on how Gray's largest market is Knoxville, Tennessee, which is only ranked in the 50's in the country. While not everybody can be top dog, I think Gray Television is just not aiming that high. It's very possible the low P/E ratio is just the market responding to fairly small growth prospects outside of further acquisitions.

Trimming the Fat

There is still some semblance of the 1960s-era conglomerate mentality in some companies, but Fisher Communications (NASDAQ: FSCI) is having none of it. I'm glad Fisher has a 5.99 P/E ratio, I appreciate its 23.2% profit margins, and I think the 2.4% dividend is a nice return. But the part that really makes me want to take a deeper look at Fisher is that it's been divesting itself of side businesses that have nothing to do with its core business model of owning radio stations. Getting rid of inappropriate departments is a great way to streamline the company, and the group-leading profit margins bear out the point that Fisher is doing pretty well.

Good History and Great Choices

The Belo Corp(NYSE: BLC) came from the A.H. Belo Corporation, and has its roots going back to 1842. In 2008, Belo spun off of the main company and became the legal successor to the original enterprise. I think that spinning off the original, print based news company was a wise decision in the modern world, and I enjoy companies that can continue through decade after decade and through all kinds of bad times. I'd say Belo's 13.8% profit margins are reasonable, its 4.5% dividend is nice, and its 8.15 P/E ratio is a well-justified deal that hasn't got a good reason for happening. I refuse to believe that a company's share price would be seriously weighed down by broadcasting in 1080i instead of 720p. Buck the system, Belo.

Broad Diversification

Sinclair Broadcast Group (NASDAQ: SBGI) is taking a different tack from Belo in that it's actually growing through acquisitions. While I would normally write off a lot of acquisitions as just a cheap method of fake growth, I respect the tactic of buying Four Points Media Group and Freedom Communications as a way of expanding Sinclair's market share without having to reinvent the wheel or add new competitors to full markets. I also respect that Sinclair started the concept of local marketing agreements in 1991. And I'm not going to lie, that 5.4% dividend is pretty sweet. I see a lot of confidence in this company, and I'd lay my bet that Sinclair's 8.33 P/E ratio is mostly just the market not seeing a solid, hungry company.

My Two Shares Worth

I think there's some serious value hiding in the TV broadcasting industry. While terrestrial TV isn't as sexy as the latest online startup, I think it's got lots of potential returns you can reap. Just be careful when you do your research and think about what stations and what markets you're dealing with. 

pongun has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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!

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