If I’d put $1,000 in Manchester United shares 2 seasons ago, here’s what I’d have now!

Football clubs can be hard to value at the best of time. Here, Dr James Fox takes a closer look at Manchester United shares as a takeover draws nearer.

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Two years ago, Manchester United (NYSE:MANU) shares were valued at just over $15. Under Ole Gunnar Solskjær, the club had just finished second in the Premier League, and lost the Europa League Final on penalties. But broadly, things were looking up.

The following two years haven’t been straight forward on and off the pitch — mixed performances and an enduring takeover saga.

However, the share price currently sits at $23.48, representing a 62% increase. So if I had invested $1,000 in the US-listed football club two years ago, today I’d have $1,620.

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The takeover

Naturally, takeovers can have a profound impact on share prices. For one, the buyer tends to pay a premium for the acquisition, in order to provide an incentive for the target company’s shareholders to approve the takeover.

After months of negotiations and bids, Qatari billionaire Sheikh Jassim bin Hamad Al Thani and British businessman Sir Jim Ratcliffe remain the frontrunners. It’s understood that Sheikh Jassim’s latest bid is around £5.5bn. That’s significant, because at this moment in time, the share price suggests the club is worth $3.9bn.

Vive Mukherjee — a chartered accountant and football finance analyst — believes the Sheikh’s offer is seeing him overpay by £2.5bn, with the club’s true value being between £3.4bn-£3.9bn.

However, the current share price doesn’t reflect the value of the bid because it’s not certain to go ahead. Moreover, Ratcliffe’s bid doesn’t include buying out the listed shares.

So these are the factors weighing on the share price. If I was certain that Sheikh Jassim’s bid would be accepted, I’d buy the stock today.

Created with Highcharts 11.4.3Manchester United Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Valuing football clubs

One way of valuing a club is the Markham Multivariate Model, developed in 2013. It makes discounted cash flow calculations look simple. This is how it’s calculated.

Club value = (Revenue + Net Assets) x [(Net Profit + Revenue) ÷ Revenue] x (% stadium filled) / (%wage ratio)

However, I don’t think it’s perfectly fitted to elite level sport. It suggests, based on the club’s most recent full-year results, that Manchester United is worth about £857m. That’s far below the $7.4bn that the Glazer family are understood to want for the club.

The thing is, there are so many variables, especially in European football. One being relegation, another being qualifying for the Champions League. The rate of a competition’s growth is another consideration. As a competition, the commercial value of the Premier League has been surging, and will continue to soar. It’s undisputedly the best league to watch, the best league to play in, and the best league to sponsor.

I’ve been interested in buying shares in football clubs for a while, but not that many are listed. And, as I’m not sure Shiekh Jassim will win, I might have missed the boat with United. Another option in Borussia Dortmund. It hasn’t finished outside the top four in nine years, meaning its Bundesliga income is topped up by Champion League revenues.

Recently, the stock soared after a crucial win against Bayern Munich, only to collapse when it missed out on the league championship on goal difference. Where will the stock go next? Can the club perform without Jude Bellingham? Clearly, lots of questions, and football-related ones too. It might be an investment I make.

Created with Highcharts 11.4.3Borussia Dortmund GmbH & Kommanditgesellschaft Auf Aktien PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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