AMC Networks: Tiny Company, Big Brand Potential

Despite its small size, AMC Networks has a large presence in television drama and remains one of the most aggressive growth plays in media.

Apr 5, 2014 at 10:00AM

A major key to success in long-term investing  is recognizing great brands. However, when it comes to growth investing, more is required; which is why I look for undervalued companies with strong brands.

In the media landscape, there may not be a more popular and pervasive brand than AMC Networks' (NASDAQ:AMCX) signature AMC channel. The channel is home to some of the biggest names in drama, and the company as a whole is still cheap and small relative to peers.

Images

Source: Company Facebook. 

Incredible brand strength
There is perhaps no better example of AMC channel's popularity and success than The Walking Dead. The zombie-filled drama keeps on getting more impressive. The series' fourth-season finale, which aired on March 30, is expected to break cable television records.

The Walking Dead has been met with incredible commercial success at every turn. The series' most recent return to cable on February 9 drew in 15.8 million viewers and managed to beat NBC's Sochi Winter Olympics coverage. 

Also, management at AMC Networks is busy promoting the first part of its final season of hit period drama Mad Men. The series is more of a critical success compared to The Walking Dead, as it has won a seemingly endless stream of awards including numerous Primetime Emmy wins for "Outstanding Drama Series."

When combined with the cultural phenomenon that was Breaking Bad, it is obvious that management at AMC Networks has become skilled at fostering the development of top-tier content.

The quality of content is so good that it is on par with premium cable services like Time Warner's (NYSE:TWX) HBO unit, which produces original content like Game of Thrones and Boardwalk Empire. This is especially impressive when we consider that management at AMC Networks has less room for risk since its channels are entirely dependent on ratings as opposed to suite networks like HBO, which is an added payment entertainment option.

Organic growth of content
One of my main concerns with the future of AMC Networks as a growth company was that it could have ended up being a victim of its own success. However, management's recent moves, which include the development of spinoff shows to The Walking Dead and Breaking Bad as well as promising new content like Turn and Catch and Halt Fire, means the likelihood of success is high.

The company has also been busy expanding its lesser-known networks like WEtv, IFC, and SundanceTV. Chief Executive officer Joshua Sapan explained in the company's most recent conference call:

We continue to ramp up programming investment at WE tv, IFC and SundanceTV, and these networks are each enjoying solid momentum. Our focus is to make each of these channels stronger, which we believe will ultimately make our portfolio of networks more valuable in the long term. 

Inorganic growth could be huge
With a market capitalization of only $5.2 billion, which is quite minuscule compared to Time Warner's $58.3 billion, the company is making moves that belie its diminutive size. AMC Networks' most recent acquisition of Chellomedia, a global cable network operator, gave the company access to hundreds of millions of subscribers in over 180 countries. Now, the company can begin to expand its popular content to new consumers the world over, which will foster even more growth opportunities. 

Growth at a cheap price
All this talk of popular content and small size would suggest that AMC Networks is expensive. However, this is not the case. The company is projected to grow revenue 39.1% and earnings per share 24.6% in 2014, and it still only trades at a forward P/E of 14.6. Although Time Warner is slightly less expensive, with a forward P/E of 14.5, its growth is vastly inferior. In 2014, Time Warner is projected to witness a 7.8% decline in revenue and only 4% growth in EPS.

Images

Source: Company Facebook.

Bottom line
The more I write about AMC Networks, the more impressed I am with the company as a potential growth investment. Not only is the company growing super fast at the moment, while still trading at cheap valuation levels, but AMC Networks will always remain a viable takeover candidate. The small size and big brand value of AMC channel properties means that a buyout of the media company in an industry that is prone to consolidation is very possible.

Six stock picks poised for incredible growth, is AMC Networks one of them?
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his six carefully chosen picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Philip Saglimbeni has no position in any stocks mentioned. The Motley Fool recommends AMC Networks. 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers