Netflix Stock – VIAC Stock Is in Shambles but That’s What Attractive About it
If you are unsure about what to do with ViacomCBS (NASDAQ:VIAC) stock, you are not alone. Even the experts on Wall Street sound like they’re making it up as they go. The analyst ratings are very wide apart from a low of $23 to a high of $120 per share. Clearly, we cannot take direction from such broad advice. Moreover, the bulk of them have a “hold” rating, which tells me they have no conviction.
VIAC stock price metrics are also misleading. If you look back only 12 months it’s up 140%. But if you look any other shorter or longer term time frame the news is grim.
The answer is that all extremes are wrong, and somewhere in the middle lies the truth. With a little bit of logic today we can form an opinion without needing to split an atom.
First a small blurb about the macroeconomic conditions. After all, regardless of the individual situation, stocks have to trade within the collective that is the market. The indices made new highs just hours ago. This means that they are vulnerable to corrections from these altitudes.
No, I am not calling a top but I am saying that there is downside risk.
Investors have no fear and this makes them dangerous. The CBOE Volatility Index (VIX) levels confirm the levels of carelessness on Wall Street. We spent an entire year with it being above 20. Now it cannot recover $18 per share. The markets will need a shock to break down. It would most likely have to be something new, not a familiar headline.
The Fundamentals Matter Still
Now we examine the VIAC opportunity starting with its fundamentals. The whole industry has been in flux for years. “Cutting the cord” is a major turn of events. Most large players were late reacting but now most are adapting well.
It is a fact that consumers want to stream content, Netflix (NASDAQ:NFLX) made sure of that. The providers are accommodating them relatively quickly. Disney (NYSE:DIS) is the prime example of this transformation.
VIAC stock metrics show shrinking revenues and deteriorating profit margins. However, the levels with which this is happening is not as alarming as the stock drop suggests. They are still able to create $2.3 billion in cash from operations. This is enough for them to continue their plans to fit this new environment.
Statistically, the stock is cheap. It has a price-to-earnings ratio of 10.7, and a price-to-sales of one. This means that the owners of the stock today have no upside expectations. This makes them hard to disappoint from here. This is a good thing since they just threw the biggest fit ever from $101 to $40.
The stock collapsed 60% in three days last month. It’s hard to believe that there is even more froth that could come out. Therein lies the upside opportunity. Who else is left to sell?
It Is Too Late to Panic Out of VIAC Stock
It is too late to panic out of VIAC stock. This doesn’t mean that it couldn’t make lower-lows still. In fact, after Monday’s action getting to $35 per share is very likely. The closer it gets to $30 per share the stronger the argument it is to buy it with conviction. This is a broken stock but not yet a broken company.
Someone made a bad bet and caused a huge debacle on Wall Street. The repercussions are still working themselves out of the system. I don’t proclaim to know what goes on behind closed doors. I think more experts should make that same statement. Not many really know the nitty gritty, so we should stick to facts. The company’s financial statements don’t lie.
Trust in Your Judgement
Using those, and a little bit of chart knowledge, we can come to a conclusion. This is not an obvious place to sell the VIAC. It is most certainly a place that could make for a nice entry point. Since we have so many question marks left, investors should take partial positions to start. Leaving room for error is very smart especially when you’re all-time high stock markets.
Yesterday, Morgan Stanley maintained an “equal weight” rating on it. But they lowered the price target 9% to $50 per share. More importantly, they see short-term upside for it. This is their convoluted way of saying what we just said. Main Street investors like us have all the tools we need to draw our own conclusion.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.