Entertainment Isn't Cheap

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

Some claim to be "magical" and some claim to show "reality," but they are all in the entertainment business. Some own theme parks, and some own networks that host the Super Bowl, but are any of them cheap enough to buy? Here are a few entertainment companies and a look at how expensive (or cheap) they really are. 

News Corp (NASDAQ: NWSA), which is commonly referred to by the screen name "Fox," has hosted the Super Bowl a total of six times, and will again receive the honor in 2014. Super Bowl tickets are not a cheap buy, but News Corp isn't as expensive as it shows a 4.7% FCF yield. In the past five years, News Corp's market cap has increased more than 40% while revenues have increased by only 4% despite increasing nine of the past ten years. The company employs over 48,000 people and shows gross margins of 38.3%. 

Its P/E isn't the most attractive at 18.6, but its performance has been very solid in recent years. They say you get what you pay for, and that may be the case with News Corp. While it doesn't appear to be cheaply priced, its stock has increased nearly 20% YTD, 44% in 2012, and 147% since its 55% crash in 2008. Remarkably, this company has outperformed the total returns of the S&P 500 in every major category ranging from 1 day to 15 years. Its not necessarily cheap, but it may be worth the price tag.

Disney (NYSE: DIS) is known for amusement parks, movies, and Mickey Mouse. How can you not love at least one of those three things? Because of its diversity, Disney currently employs over 166,000 people. It shows a market cap of $103.4 billion (approximately 45% larger than News Corp) and a FCF yield of 3.6%. Again, not exactly the cheapest stock available. Like News Corp, revenues have increased nine of 10 years, but Disney's gross margins are only 21%. It holds the same P/E as News Corp and has shown impressive performance -- but not quite as impressive as News Corp.

Shareholders still shouldn't be complaining about the performance Disney is posting, despite its price. YTD returns are in excess of 14%, with nearly a 112% increase since its 28.6% loss in 2008. You might notice the down side protection in this figure as well. Despite its loss in 2008, Disney did 8.38% better than the S&P and approximately 27% better than News Corp in that same year. Again, Disney may be worth the price for some investors looking for what may be a continuation of its good performance. 

Time Warner (NYSE: TWX) employs far fewer people than Disney or News Corp with just 34,000 employees. This company also has the smallest market cap of the three at $54.3 billion, but has a FCF yield of 5.2%. Based strictly on FCF yield it is not extremely cheap, but it does appear to be cheaper than either Disney or News Corp. Let's look at some other metrics to see if this is true. As crazy as it sounds, all three of these companies have the same P/E ratio. Time Warner's gross margins are higher than either of these other companies as well, showing 44.5%.

If we assume that Time Warner is the cheapest for the moment, does it show a performance worth buying into? Well, it is up 21% YTD and nearly 129% since 2008. Although it fell more than Disney in 2008, it matched the S&P's 37% crash. Time Warner has managed to show total returns that beat the S&P in every basic measurement from one week to 15 years. So, it gives comparable performance at a cheaper price. The chart below shows just how well these companies have done in comparison to the S&P 500. 

DIS data by YCharts

The Foolish Conclusion...

While none of these companies offer tremendous discounts for their stocks, they all have performed well and appear to be continuing this trend. They have all smashed the S&P in most major areas. So, they may not be exactly what bargain investors are looking for, but they do present opportunities for the right investors. 


Tyler Wofford has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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