Paramount Global Stock: Gaining Momentum Heading Into 2023 (PARA)

Paramount Continues To Rollout Hit Entertainment & Appears Undervalued At Current Levels

At a market capitalization of only $12.5 billion, and trading at a significant discount to recent book value, Paramount Global’s (NASDAQ:PARA) stock appears deeply undervalued at current levels. The company is an industry leader in entertainment, with a strong portfolio of assets and a long history of profitability (founded in 1986). Paramount Global also has a decent balance sheet, with $3.3 billion in cash on hand. Given the company’s attractive valuation, strong financial position, recent entertainment successes (Figure 1), and industry-leading position, we believe Paramount Global’s stock is a good investment at current levels.

Figure 1. Yellowstone has been one of the year’s top rated television series and has continued to earn accolades early into season 5

At current stock prices, Paramount Global shares appear to be undervalued by as much as 50%. The market is not appreciating the value of the company’s recent successes, nor is it expecting the Paramount+ streaming service to be as big of a success as it is likely to be. Paramount Global is an industry leader in entertainment with hit movies like Top Gun: Maverick, and its stock is currently discounted compared to its peers by almost all valuation metrics. Investors should look at Paramount Global as a long-term investment, as the company is well-positioned to capitalize on the growing streaming market and only awaits a turnaround in macroeconomic headwinds to regain steam.

Current Valuation

Paramount Global’s stock is currently trading at $19 per share. The company’s market capitalization as previously mentioned is ~$12.5 billion, and its price-to-earnings ratio sits around 10x earnings. Paramount Global is a diversified holding company with businesses in a variety of industries, most notably in the broadcasting area. Other valuation metrics such as EV to sales (Figure 2) and price to book ratio also put the stock at deeply discounted values despite high levels of debt.

Figure 2. PARA’s stock trades over 50% below competitors’ levels despite holding strong growth potential with investments in Paramount Plus just beginning to take shape

The company’s 52-week high was over $39, and its 52-week low was near the $15 mark showing the recent volatility and upside potential the stock holds. Wall St. Analysts’ ratings place target prices as high as $45 with the average rating falling closer to the $21 mark with many bearish analysts pointing towards Paramount’s other non-streaming businesses as weak points while we see these areas as potential diversification during a potential economic downturn that other streaming services such as Netflix (NFLX) do not hold.

Risks

Investing in any stock carries a certain amount of risk. However, when you invest in a company like Paramount Global, you are taking on a higher level of risk as the stock holds over 17% short interest and has recently fallen out of favor. This is also because the company’s flagship program, Paramount Plus, is a relatively new service and it is still in the process of establishing itself in the marketplace. Additionally, the stock price of Paramount Global is highly volatile, which means that it can fluctuate rapidly in value as we have seen over the past year or so. For these reasons, it is important to hedge a bet in Paramount with other names and understand the risks before you invest in Paramount Global’s stock.

Paramount Global’s stock is currently undervalued, which means that there is potential for significant growth in the future. However, the stock does have a significant amount of debt (~$17 B) to its name. Here are some of the other risks to consider and monitor before and while investing:

1. Paramount Plus is a relatively new company in a competitive market and has not yet proven itself beyond its competition in the marketplace

2. The company is heavily reliant on a small number of key partners (as are many broadcasters), which could pose a risk if any of those partners were to pull out of the relationship (CBS & Affiliates, Facebook, Etc.)

3. Profitability is below the market average and debt hangs over the stock as a heavy storm cloud that should be monitored quarter to quarter

Despite the risks, Paramount Global’s stock in our opinion is still more than a worthwhile investment for those looking for long-term growth potential. The stock is very deeply discounted and most if not all of the risks we expect to be overcome in the near to mid-term.

Overall Investment Summary

In conclusion, Paramount Global’s stock continues to gain upside momentum with hit releases and should be considered due to its deeply discounted valuation. The company’s strong financial position and recent operational improvements give it a solid foundation to continue its growth. Paramount Global is a good investment for any portfolio trading at as much as a 50% discount to peers. Risks are there as with any stock, but we believe they are on the way of being overcome in the near to mid-term.

Overall, Paramount Global’s stock has shown positive signs of upward momentum in recent weeks. The company has a strong blue chip history, which gives it the ability to weather any short-term setbacks. Paramount Global is a good long-term investment and should be considered by any investor looking to add to their portfolio and is one of our favorite stocks going into 2023.