FOX trades at $61.98 and has moved in lockstep with the market. Its shares have returned 16.1% over the last six months while the S&P 500 has gained 15.5%.
Is there a buying opportunity in FOX, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think FOX Will Underperform?
We're cautious about FOX. Here are three reasons there are better opportunities than FOXA and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, FOX grew its sales at a sluggish 5.8% compounded annual growth rate. This was below our standard for the consumer discretionary sector.
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect FOX’s revenue to drop by 2.6%, a decrease from its 5.8% annualized growth for the past five years. This projection is underwhelming and suggests its products and services will face some demand challenges.
3. Cash Flow Margin Set to Decline
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Over the next year, analysts predict FOX’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 18.4% for the last 12 months will decrease to 13.9%.
Final Judgment
We see the value of companies helping consumers, but in the case of FOX, we’re out. That said, the stock currently trades at 14.4× forward P/E (or $61.98 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are more exciting stocks to buy at the moment. We’d suggest looking at a top digital advertising platform riding the creator economy.
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