Popularity surrounding stocks in the FTSE 250 and other indices can come and go like the wind.
This cyclical shift of capital between the latest trends can create some volatile share price momentum. Often, it’s the sudden price jumps which are unjustified. But every once in a while, it’s the rapid declines that can seem overkill.
This certainly seems to be the case with Future (LSE:FUTR). Despite sales and earnings 3.7 and 15 times higher since 2019 respectively, shares are currently trading firmly below pre-pandemic levels. At a price-to-earnings ratio of 8.2, the media stock looks absurdly cheap, given its gargantuan historical growth.
So is now a good time to start buying? Maybe. Let’s take a closer look.
A global media titan fallen from grace
Many individuals may not be familiar with Future. But chances are they’ve seen at least one of its publications. The media group owns and operates over 100 magazine brands. The list includes some of the biggest in the world, such as Country Life, Tech Radar and Marie Claire, among others.
Owning a stock in the magazine industry in 2023 may seem somewhat archaic. But with digital content consumption on the rise and advertisers following along, the firm has become a cash-generating machine. This was especially true during the pandemic lockdowns when everyone was stuck at home getting bored out of their minds.
Today, demand for such content appears to be falling, which has spooked investors. The latest results weren’t terrific, despite adding numerous brands to its portfolio. In fact, sales shrunk, as did the number of online readers.
Compared to the staggering double-digit growth reported not too long ago, it’s understandable for investors to be frustrated. Audience trends are notoriously difficult to predict, given consumers’ constantly changing tastes. And it doesn’t help that the cost-of-living crisis has caused this year’s digital advertising demand to tumble.
Pairing all this with a long-standing CEO making an exit, and the result is a 60% share price drop within the last 12 months.
Is this a bargain?
Despite all the turmoil at Future, the horizon is potentially quite promising. With economic conditions improving, consumer demand is recovering, allowing businesses to ramp up their marketing budgets again.
In fact, management has already noted that the monetisation of its content has already begun to improve. And it’s backed it up by announcing a £45m share buyback programme.
In my experience, this is a good indicator that a management team has confidence in the near-to-medium-term performance. And it’s another hint towards the stock potentially being undervalued.
What about the decline in online readers? In my opinion, this is the more concerning problem surrounding the FTSE 250 company. Readers losing interest in what Future has to offer, or switching to a competing brand, are early warning signals that something might be wrong.
However, as things stand, there’s not enough evidence to suggest this is the case versus a natural normalisation of viewership after an exceptional period.
It’s also worth pointing out that Future has dealt with such trends in the past and still came out on top. So while there’s no guarantee it can repeat this recovery, I’m cautiously optimistic.
