While stock prices for many companies have bounced well off of March lows, there are still some quality companies trading at bargain valuations. Some organizations deserve the low price-to-earnings (P/E) multiples. Some don't and just happen to be mired in low valuation territory and available at a bargain stock price.

Here is one such quality stock that is on sale and poised for higher prices.

ViacomCBS: Working to make a merger pay off

ViacomCBS (PARA -1.45%) (VIAB) stock is trading more than 53% off its 52-week high. That's despite the fact that, in its most recent quarter, the entertainment giant posted $478 million in adjusted free cash flow. It managed a solid bottom-line figure without revenue from having broadcasting rights to the immensely profitable March Madness college basketball tournament; it was canceled because of the coronavirus pandemic.

A family sits together on the couch and smiles at what they are seeing on a nearby TV screen.

Image source: Getty Images.

With $18 billion in long-term debt -- largely related to Viacom and CBS' merger (completed late last year) -- cash flow will be key for the company to pay down its obligations. CEO Bob Bakish is dedicated to maintaining an investment-grade balance sheet despite the heavy debt load. ViacomCBS' already solid cash flow amid tough times helps make that more doable.

The entertainment stock trades for 5.6 times its forward P/E (among the lowest of S&P 500 stocks) while analysts expect it to grow profits at a respectable 17% clip from this year to next. Pre-merger, Viacom and CBS's market caps combined for $31 billion. Today the newly merged company is worth $15.5 billion. Why the depressed valuation? Aside from the aforementioned debt, investors' main fear seems to be that cord-cutting will hinder the company's cash-generating networks like CBS, MTV, BET, Nickelodeon and more; fewer eyeballs lead to less advertising revenue.

Underrated streaming assets

While this concern has some validity, ViacomCBS is actively hedging its broadcast and cable business by addressing the new streaming phenomenon that is slowly replacing it. Its Pluto TV streaming service is a free, ad-based alternative to Netflix (NFLX -0.79%) and other paid competitors. Pluto is the most popular free streaming service in the industry. As of the end of March, the platform had 24 million monthly active users, a 55% year over year increase.

In the month of June alone, Pluto added an admirable 4.5 million users. For context, Netflix added 10 million users in its recent quarter; Pluto needed a third of the time to realize nearly half of that increase. While Pluto is free and Netflix is a paid service, this is still impressive user growth.

What does ViacomCBS get from people consuming more of its content for free? First, the company enjoys incremental ad revenue from the large audience. This will increasingly become a core piece of the company's business if streaming continues to replace traditional cable.

Perhaps more importantly, Viacom can use Pluto to actively market its paid services -- CBS All Access and Showtime -- on the platform. Both services added record numbers of subscribers in ViacomCBS' recent earnings report and fostered 51% revenue growth in its digital & streaming segment; perhaps Pluto is part of the reason why.

At a Credit Suisse investor conference this year, CEO Bob Bakish laid out his vision for a revamped CBS All Access. Thanks to the merger of Viacom and CBS, the service is adding 15,000 hours of new content that will be available by 2021. Networks including Showtime, BET, MTV, Comedy Central, and Nickelodeon will be added. Its film studio, Paramount Pictures, will also be part of the reinvigorated service.

A game-changer for CBS All Access

Bakish informed investors of his plans to integrate Viacom's sports broadcasting content into the service as well. Sports account for 88 of the top 100 most-watched television events on cable. Broadcast rights for leagues like the NFL, PGA, college basketball, and college football are differentiators in a crowded streaming landscape. 

It's difficult to create hit show after hit show when so many other organizations are trying to do the same. It's easier to lean on immensely popular sports leagues to drive a larger audience. The company is in a good position to do just that. As the broadcaster, ViacomCBS simply needs sports to be played in order to profit; the company does not necessarily need fans in the actual stands. With the PGA back to work and the NFL reporting to training camp as planned, things are looking up for Bakish and his management team.

To make things even more interesting, the company recently announced a four-year TV deal with soccer's UEFA Champions League, a major European soccer league. In the last full Champions League season, revenue for the league as a whole grew by a whopping 38%. No other sports league enjoys that kind of rapid growth. To compare, the NBA and MLB grew 10% and 4% respectively in the same season. Both American counterparts are roughly twice the size of Champions League in terms of revenue, but the growth gap is undeniably impressive. ViacomCBS now has exclusive streaming rights for Champions League games in the U.S.

Investors have long used the cord-cutting movement as an excuse to sell ViacomCBS. That has created an intriguing valuation that is truly a bargain. The company is enjoying strong user engagement across all its streaming and direct-to-consumer assets by effectively evolving with the times; that momentum does not seem to be slowing. Bakish is transforming his company into one capable of providing entertainment no matter how people are consuming it; potential investors should take notice.