Last week, Fool contributor Steven Mallas covered how film studio Lions Gate Entertainment
And, speaking of competitors, Lions Gate took a chance last year and purchased rival Artisan Entertainment. So far, that risk has paid off handsomely. After the market closed yesterday, the company reported a modest $0.10 a share of net income (after adjustments -- unadjusted EPS was $0.03) for the third quarter, a significant improvement from the year-ago quarterly loss of $0.45 a share.
While net income met analyst earnings projections, it is the free cash flow from operations (after debt service), which went from a negative $25 million to a positive $32 million ($0.33 a share), that should impress investors. Because the company has $290 million in bank loans and subordinated notes, it's reassuring to see cash being produced.
Analysts expect the company to earn $0.26 this fiscal year (which ends March 31) and $0.39 a share the following year. That works out to a forward price-to-earnings ratio of 28 -- a higher multiple than that at more diversified entertainment companies such as News Corp.
One reason for that premium is the pending $5 billion purchase of Metro-Goldwyn-Mayer (and its lion icon) by a consortium that includes Sony
Lions Gate is no blushing bride looking for a Romeo. It's busy with a full slate of feature films. It's also charting new waters with Motley Fool Stock Advisor recommendation Marvel Enterprises
The stock has been roaring ahead 94% over the last 52 weeks. Good earnings, gushing free cash flow, and the potential of a buyout are attracting investors. But the stock is no longer value-priced. Unless you feel the upcoming movie slate is particularly strong, there is no reason to rush in at today's prices.