The entertainment industry is in flux right now as it gradually shifts from traditional broadcasting to streaming. An industrywide change like this often means a new battle for market share, which is where Paramount Global (PARA 0.92%) finds itself today.

The company is building a direct-to-consumer streaming service while balancing its leading broadcast and theater businesses. The juggling act has crushed its profits, and shares have fallen 84% from their former highs.

But this could be a tremendous opportunity for patient investors. Paramount Global has shown signs that its plan is working, and the stock could have a 100% upside when it follows through.

Here is why.

Paramount has some short-term challenges

Traditionally, Paramount Global has been a media juggernaut in the broadcast and theater industries. Its flagship station, CBS, offers a combination of programming and live sports and has been the most-watched station for 15 years and counting. Additionally, Paramount owns several other stations, such as Nickelodeon, MTV, Comedy Central, and Showtime. Its Paramount movie studio is behind various blockbuster titles, including the recent Top Gun: Maverick.

Overall, Paramount does more than $30 billion in annual revenue. The business has grown nicely since the pandemic, but you can see below how profits have cratered, falling from $4 billion to more than $400 million in losses.

PARA Revenue (TTM) Chart.

PARA Revenue (TTM) data by YCharts.

So, what's the deal? One could point to the current downturn in advertising as companies pull back on marketing budgets in fear of a looming recession. However, Paramount's budding streaming service Paramount+ is the biggest culprit. The service cost more than it brought in during the first quarter, costing $2 billion versus $1.5 billion in revenue.

What's the plan here?

Why might Paramount operate its streaming service at a loss? Paramount and competitors like Disney are competing for streaming market share. Like other entertainment businesses, streaming is more powerful as the audiences grow. A bigger audience means better monetization opportunities, and that's where investors should be focusing right now.

Paramount increased its subscriber count by 4.1 million in the first quarter, hitting 60 million total subscribers. Paramount+ generates revenue by charging subscribers membership fees and collecting ad revenue. Currently, memberships generate the majority of revenue, but Paramount can pull both levers over time. Ad revenue grew 15% year over year in Q1, and subscription revenue grew 50%.

Eventually, Paramount can begin raising prices on Paramount+, and ad revenue should grow with the service's audience. At some point, the streaming business (hopefully) begins making a profit. Analysts are optimistic, estimating earnings-per-share (EPS) of $2.80 in 2026, up from the $0.68 expected in 2023.

Here is the investment opportunity

Assuming analysts are right about Paramount's ascending profits over the coming years, the stock is a tremendous potential opportunity today. The current share price of $15.50 means that the stock trades at a price-to-earnings ratio (P/E) of just over 5, using 2026 estimates. That's more than a 66% discount to the broader market today, despite earnings potentially quadrupling over the next several years.

A quick look at competitors like Netflix and Disney emphasizes how much the market is discounting Paramount to its peers. Even if you put a very conservative valuation on Paramount, let's say, a P/E of 11, the stock would double over the next three years. It's not unrealistic to imagine it appreciates beyond that if it can effectively monetize its streaming business.

NFLX PE Ratio Chart.

NFLX P/E Ratio data by YCharts.

Paramount doesn't need to become the world's largest streaming service; it just needs to stay competitive. Its cache of content, including live sports and precious National Football League broadcast rights, seems like enough to get the job done. Nothing is guaranteed in life except death and taxes, but not a lot needs to go right for a stock to be a successful investment when starting from such a low valuation.