Does WWE Sell-Off Give Investors a Reasonable Entry Point?

After trading at absurd valuations for much of the past year, WWE has seen 20% shaved off its market cap over the past month. Recent data from the launch of its network may indicate a relatively good buy.

Apr 8, 2014 at 3:06PM

World Wrestling Entertainment (NYSE:WWE) got the smackdown during Monday's trading, dropping nearly 15% over the course of the day. In the past month, the stock is down nearly 20%. It's not that the company is doing poorly. The premium cable network WWE has passed the 600,000-subscriber mark and is well on its way to hitting 1 million -- and it's not even two months old. The reason for the drop is because the market, in typical fashion, awarded WWE a sky-high valuation. The question now is: Does the recent drop make the stock a buy?

Pinned down
The WWE didn't report any poor financials in the last month, but it did tell investors and analysts the early results from the launch of its streaming network. For a network that has been available for less than 50 days, a 660,000-strong paying audience isn't much to scoff at, especially considering the limited scope of the programming (24-hour wrestling content). Still, this is a business that has traded at absurd valuations for months on end.

As of April 4, WWE had booked a six-month move of nearly 160% in capital appreciation. North of $30 per share, the company was trading at a trailing P/E of more than 700 times. That number doesn't quite tell the story of the business, as WWE incurred big expenses leading up to the launch of its network. In 2012, the company earned $0.42 per share, implying a still-absurd 70-plus times trailing two-year earnings. For the full-year 2015, analysts expect on average $1.16 per share, giving the company a two-year forward P/E of 26 times -- until today's drop.

Wrestling is certainly a perennial cash-cow business, driven by the big-time pay-per-view fees with gorgeous margins -- but does it justify these ambitious valuations?

Good and evil
On an operating level, investors should be pretty excited at the immediate results from the WWE Network. Management notes that 1 million subscribers, which the company shouldn't have too much trouble hitting soon, is a breakeven point for the venture. At 2 million subscribers and up, the company uses the term "transformative" to describe the effect on the business.

WWE Network is only available in the U.S. and on limited platforms. If the company wants (and it should), it will unlock the floodgates and put the network on every platform imaginable. Two million or more users paying $9.99 per month is a reasonable possibility in the next few years.

After the major correction, WWE now trades at roughly 20 times forward earnings (using $1.16 per share). The number isn't quite low enough to ignite the interest of price-conscious investors, but growth hunters should take notice. The wrestling crowd is a loyal one, and this new network has the potential to capture them all.

Six stock picks poised for incredible growth
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 carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.


Michael Lewis has no position in any stocks mentioned, and neither does The Motley Fool. 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information