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Logo courtesy of CBS

CBS (NYSE:CBS) stock is near its 52-week low. It had a strong rise through Q1 but then a gradual decline since. CBS's most recent quarterly earnings report indicated growing revenues year over year, but the company did not meet analyst expectations and the decline continued.

However, the company is in transition and moving toward a stronger business model, one that is less focused on advertising and more toward content creation. Because of the dip so far this year, the stock is trading at an attractive value compared to the industry and competitors like Time Warner (NYSE:TWX). Here's why CBS stock could be a buy now.

The best show to watch
CBS's revenue in the most recent quarter reported fell below analyst expectations even though it's still growing modestly year over year. By contrast (NYSE:TWX)Time Warner reported a very strong 29% earnings growth year over year and was ahead of analyst expectations. 

One reason CBS was not able to report as strong of a quarter as competitors is that CBS's historically largest segment, advertising, has taken a revenue nose dive due to competition from lower-cost advertising options. However, for the quarters and years ahead, this won't be much of an issue as the company starts to diversify further away from advertising and more toward content creation. The company has been making its transition away from advertising and toward creating its own content, creating a company that has complete ownership of some of the most-popular shows on TV. 

Speaking of the company's current TV content, CBS CEO Moonves said that the company has full ownership in four out of five of the new series aired this fall, and more than 70% of its total lineup. The company is proving its ability to create winning content. With top-rated TV series like NCIS and The Big Bang Theory, the company has led broadcast networks with 47 Emmy nominations for the year. Furthermore, the company even recently announced it's own stand-alone web subscription service, giving them even more control over their created shows.

Cbstelevision
Courtesy of CBS

Currently, the company's revenue breakdown is just reaching around 50/50 between advertising and non-advertising revenues. This move to content creation could mean big gains in the company's bottom line as these series are picked up for very lucrative deals not just in the U.S., but internationally as well. For instance, the fall/winter series of NCIS: New Orleans, one of the company's most popular shows, already has a large international deal in place that will bank as much as $5 million in revenue per episode.

According to CBS management, rarely is one of these major international deals worth less than $2 million per episode for a brand-new drama, or $3 million for more established hits. With more and more top-rated content created, CBS will be able to make these deals much more lucrative than the advertising revenues it depended on in the past, meaning the future of this company looks much brighter than its last few quarters.

Is the price right for this stock?
CBS's stock is now trading near its lowest point in the last year. This looks like a good value at an attractive P/E around 17 times trailing earnings, well below the industry average near 25 times. CBS also has healthy financials including relatively low debt, as well as industry leading gross margins of 43% compared to the industry average of 36%.

Cbs Logos
CBS might be creating more of your favorite content than you think. Photo: CBS


With the company's transformation from advertising to content creation, and a transition that looks very promising for the company's future, there are likely to be big gains for the company's bottom line. Now at an attractive P/E well below the industry average, CBS looks to be a good value now for investors who believe the company can continue to accelerate earnings growth in the next few quarters and years on its new strategy. With that, this could be a great time to buy CBS.

Bradley Seth McNew has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.