Investors searching for a growth story need look no further than blossoming entertainment studio Lionsgate (NYSE: LGF ) .
The larger players in the industry may overshadow this comparatively minor offering with their size and impressive market caps, but it'd be small-f foolish to overlook Lionsgate's potential. From a plethora of ready-to-shine works in the pipeline to powerful brands already under its umbrella, this company offers too much reward to simply ignore.
The dark horse
At first glance, Lionsgate's financials look shaky at best. The studio's return on assets of 1% barely breaks even. The stock doesn't offer a dividend for income investors to feel good about. While it trades at a hefty price-to-book ratio of 21, a number that looms large over the industry average of 3.4, the company still clings to a negative net margin.
The company's larger conglomerate rivals look like better picks on paper. Industry goliath Disney (NYSE: DIS ) offers a 1.2% dividend along with a respectable 12.5% net margin and a comfortable 10% return on investment. Colossal conglomerate Time Warner (NYSE: TWX ) , the parent of media studio Warner Brothers, serves a 2.6% dividend and a decent 10% net margin.
Investors interested in feeling safe and sound could indeed be better off with these picks. Those looking for some real future growth, however, could see a boom in Lionsgate's growth from minor player to industry staple.
A pipeline of promise
Unlike its conglomerate cousins, Lionsgate enjoys the opportunity to focus solely on its film and television studios -- and it has indeed capitalized. The company's acquisition of Summit Entertainment gave it exclusive rights to the multibillion-dollar Twilight franchise, a brand sporting a gargantuan, devoted fan base and lucrative cash-generating opportunities. The series' $2.5 billion of ticket sales have made 66% more through its four films in four years than Lionsgate made in total revenues across 19 films in 2011.
That's just the start of Lionsgate's brand revolution. The Hunger Games series potentially offers an even greater source of revenue, reaching all four quadrants of audiences (men and women, both young and old). The first movie's release this year offered up nearly $700 million in box office sales alone, a number comparable to the recent Twilight hauls. It's Lionsgate's most successful film to boot, which promises greater returns for a studio that got by on Tyler Perry films and Saw installments for the past few years.
If the Hunger Games series matches the path of the Twilight movies, it could realize sustained ticket sales of around $700 million per film. Such revenue for the series' three remaining installments would earn another $2.1 billion at the box office. While Lionsgate only receives a portion (albeit, a significant one) of that money, it's estimated that between solely the first Hunger Games film and the last Twilight installment, the studio could realize $450 million in profit. That's not chump change.
Lionsgate's future productions promise even more returns. The studio's portfolio of young-adult book franchises offer brand appeal to the under-24 moviegoer market. That age cohort generated nearly 50% of all ticket sales among total moviegoers in 2009 and has propelled many recent PG-13 films (such as The Hunger Games itself) to stratospheric box office returns. Lionsgate's future focus should profit handsomely off this youthful market.
Lionsgate is ready to roar
These kinds of record movie sales will translate into shareholder-friendly numbers on the studio's future income statement. Ninety percent of revenues from The Hunger Games haven't showed up on its reports yet, promising tantalizing returns for when they do appear. Company CEO Jon Feltheimer predicted $900 million in EBIDTA over the next three years alone after the film's startling success, a number that would blow away the $33.4 million offered the previous year.
This studio should succeed wildly in the coming years with its appealing titles and commitment to success. While its larger, conglomerated rivals may sport more attractive balance sheets and financial statements currently, Lionsgate's moves and plans have the company ready to shine as bright as any star in Hollywood. Heady investors looking to roll with some risk could realize outstanding rewards from this studio's bright future.
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