2023 has been a tremendous year for music lovers, as artists such as Taylor Swift and Beyoncé sparked demand for concert tickets across the globe. With so much enthusiasm for tickets, I’m keen to learn more about one of the giants of the sector, Live Nation Entertainment (NYSE:LYV). So is this a potential long-term winner for my Stocks and Shares ISA, or is it one to pass on?
The year of the artist
With the lockdowns of the pandemic now firmly behind us, the biggest names in the musical world were finally able to bring their long-awaited music to stages across the world. Clearly there were some enormous tours, such as Taylor Swift’s Eras tour, attracting massive audiences. But even smaller venues have seen exceptional fan demand, with double-digit growth in fans and ticket sales globally.
The firm’s concerts segment saw quarterly revenue increase by $1.7bn (32%), with 52 million fans attending shows. Its share growth has been even better and it’s up an impressive 35% for 2023 alone.
With so much interest in the entertainment sector this year, I’d expect there to be much more discussion around potential investments in companies like Live Nation Entertainment.
That said, when it comes to an investment for my Stocks and Shares ISA, I like when I find a business nobody else is talking about, especially if the numbers are appealing.
Not that Live Nation Entertainment is exactly under the radar. It has a price-to-earnings (P/E) ratio of 67.1 times, much higher than the average in the sector with a P/E ratio of 23.7 times. I wouldn’t necessarily let this scare me off though, as earnings growth of 26.4% shows the company is moving much faster than the sector average of 13.4%.
Another analysis metric I like to use is a discounted cash flow calculation, which calculates an approximate fair price. And here, the calculation suggests the share price is as much as 33% below its fair value of $140.29.
Risks
Of course, it may never achieve that price. And there’s a risk that excitement around concert tours may wane, leading to declining revenues. Furthermore, if there’s a decline in the economy, many will find it hard to justify spending big money on concert tickets.
With revenues growth fairly aligned to the sector at 7.6%, success will all come down to how efficiently the company can operate over the coming years. Yet the return on equity, showing how efficient the firm is with shareholder investment, is at 34.5%. That’s impressive against the sector average of 19%.
If this can continue, investors may be rewarded with sustained growth, but disappointment could easily send the shares down heavily.
Am I buying?
Live Nation Entertainment seems to be at a point where efficient operations could lead it into a strong financial future, but with uncertainty everywhere in the economy, I’m still hesitant to pick shares up for my Stocks and Shares ISA. I’ll be adding it to my watchlist for now.
