Paramount Global: A Cheap Stock with Limited Potential Unless a Bottom-Fishing Buyer Emerges
Paramount Global (NASDAQ: PARA) has seen its stock price plunge by over 50% in less than a year, reaching a high of $24.60 around January 2023. The company faces challenges such as a high debt load, a declining dividend, and struggles in the increasingly competitive DTC streaming sector.
While some bullish investors point to the impressive intellectual property (IP) portfolio owned by Paramount Global as a reason to buy the stock, a closer look reveals some concerns. The value of IP like CBS, Showtime, Paramount Pictures, Nickelodeon, Comedy Central, BET, Paramount+, and Pluto has diminished over time, with some of these brands losing relevance with younger generations. For example, even iconic films like “The Godfather” released in 1972 may not resonate with millennials as much as Taylor Swift’s latest hit.
Additionally, Paramount Global faces significant debt obligations, with an estimated $931 million per year in debt service costs. This poses challenges for the company’s ability to generate profitability and retire its debt.
When valuing Paramount Global’s IP, it’s crucial to consider the future demographics and preferences of audiences. The valuation based on past performance may not accurately reflect the value to potential buyers in the coming years. To assess this, a real-world, age, and demo-sensitive forecast is needed. The IP’s value must be calculated considering the composition of future audiences and their preferences.
Furthermore, Paramount Global owns substantial real estate assets, including the CBS broadcast center in Manhattan and the Cloud Center on Long Island. However, the shifting dynamics of New York real estate due to the work-from-home movement and other factors raise questions about the true value of these properties.
While Paramount Global may be capable of maintaining its operations and reducing debt over time, it is unlikely to experience significant growth that would justify a substantial investment. Investors may need to wait for a bottom-fishing buyer to emerge and negotiate a deal that includes assumptions of debt and real estate assets.
Therefore, it is recommended to approach Paramount Global as a hold with cautious optimism, only considering a potential investment if a bottom-fishing buyer emerges at a favorable price range of $15.85 to $17.00. Until then, investors should temper their expectations for this stock.