Warner Music Group currently trades at $31.56 per share and has shown little upside over the past six months, posting a middling return of 0.8%.
Is now the time to buy Warner Music Group, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
We're sitting this one out for now. Here are three reasons why WMG doesn't excite us and a stock we'd rather own.
Why Is Warner Music Group Not Exciting?
Launching the careers of legendary artists like Frank Sinatra, Warner Music Group (NASDAQ:WMG) is a music company managing a diverse portfolio of artists, recordings, and music publishing services worldwide.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, Warner Music Group grew its sales at a sluggish 7% compounded annual growth rate. This was below our standard for the consumer discretionary sector. 
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Warner Music Group’s revenue to rise by 4.4%, close to its 4.6% annualized growth for the past two years. This projection doesn't excite us and implies its newer products and services will not catalyze better top-line performance yet.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Warner Music Group historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 10.1%, somewhat low compared to the best consumer discretionary companies that consistently pump out 25%+.
Final Judgment
Warner Music Group’s business quality ultimately falls short of our standards. That said, the stock currently trades at 23.1× forward price-to-earnings (or $31.56 per share). This valuation tells us a lot of optimism is priced in - we think there are better investment opportunities out there. Let us point you toward the most entrenched endpoint security platform on the market.
Stocks We Would Buy Instead of Warner Music Group
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