UONE - Urban One And Its Real Value
2023-10-27 13:37:09 ET
Summary
- Urban One, Inc. faces potential delisting from Nasdaq after failing to file required financial reports.
- The company may also face securities litigation due to the delisting.
- Despite the challenges, Urban One has a strong revenue stream from political advertising campaigns targeting African Americans.
Urban One, Inc. ( UONE ), (UONEK) is the largest diversified media company whose primary target is African Americans. They own and operate TV One LLC, a television network serving over 59 million households across the United States.
Earlier this year, they came under fire and now face a potential NASDAQ delisting . This complication arose after they failed to file Q1 and Q2 reports from 2023; NASDAQ requires all companies to timely file required financial reports. This week, they were granted a 15-day extension of an automatic suspension from the stock market. This is positive news for Urban One, as their hearing with NASDAQ isn't scheduled until November 30th. At present, Urban One maintains that their reports were left out because of accounting errors, and that they're currently in the process of completing them. It's expected that these reports will be submitted by their November hearing.
In light of potentially being delisted from the NASDAQ, Urban One Inc. has opened themselves up to potential securities litigation as well. A prominent New York City securities law firm, Faruqi & Faruqi, is already pursuing potential avenues of litigation because of claims against the company. While this may not be an immediate threat, as it's unclear exactly what they would pursue and because the NASDAQ committee has not officially delisted UONE, it's still worth noting. Additionally, while getting delisted itself does not violate federal securities laws, companies that get delisted often face additional scrutiny from the SEC or DOJ . So, should UONE indeed be delisted from the NASDAQ, they will surely be headed for troubled waters.
Amidst the flurry of unfavorable circumstances, UONE finds themselves in, a silver lining in their future outlook lies in the niche industry they occupy. Urban One, Inc., and their many subsidiaries, target African-American adults. This target audience, and their ability to connect to them, opens up many favorable business opportunities. Their CEO Alfred C. Liggins III, has stated that amidst the hit they've taken this year, their radio division remains profitable because of political advertising. This is a strong revenue stream, even stronger considering this is an off-cycle political year. If Urban One can continue to connect with their target audience and generate revenue from political advertising campaigns, they will look to both cement their place in African-American media and maximize their future profits.
When considering these current stories about UONE, we need to determine which news topics will have a long-term and ongoing effect on the company and its share price. While Urban One faces a string of hardships moving forward, the extent of the ramifications they face is still unknown. It won't be until November 30th, the scheduled day they go before the NASDAQ committee, that all the information is released. Should they face adverse consequences, Urban One will look to rely on their strong support from political advertisement to help weather the storm.
While current news stories, good or bad, can sway our opinion about investing in a company, it's good to analyze the fundamentals of the company and to see where it's been in the past and in which direction it's heading.
This article will focus on the long-term fundamentals of the company, which tend to give us a better picture of the company as a viable investment. I also analyze the value of the company versus the price and help you to determine if UONE is currently trading at a bargain price. I provide various situations which help estimate the company's future returns. In closing, I will tell you my personal opinion about whether I'm interested in taking a position in this company and why.
Snapshot of the Company
A fast way for me to get an overall understanding of the condition of the business is to use the BTMA Stock Analyzer's company rating score. UONE currently has an unfavorable company rating score of 47.2 out of 100.
Before jumping to conclusions, we'll have to look closer into individual categories to see what's going on.
Fundamentals
Let's examine the price per share history first. In the chart below, we can see that price per share remained in a steady, slight decline for many years. From 2019-2021, however, price per share skyrocketed. And while it has tapered off slightly since then, it's important to note price per share is still recorded at record levels for UONE. Overall, share price average has grown by about 65.52% over the past 10 years, or a Compound Annual Growth Rate ((CAGR)) of 5.76%.
Earnings
Looking closer at earnings history, we see inconsistent fluctuations over the last 5 years. UONE earnings recorded their lowest levels from 2013-2015, when they dropped in negatives. In the following years, from 2015-2018, UONE earnings skyrocketed to their highest levels. They dropped again the next year in 2019, and have since leveled out; recording less fluctuation, but back to positive earnings.
In order to make sense of such great swings and inconsistent earnings, you need to look outside of the financials and consider the world and market climate UONE operates in. UONE is the largest media company in the United States that primarily targets the African-American community. Recently, UONE CEO Alfred C. Liggins III has been quoted acknowledging the success UONE has seen by running political ads across many of their media platforms. Given this information, it's entirely possible this could be directly responsible for the UONE earnings surge from 2015-2018. One of the biggest election years the United States has ever seen occurred in 2016. With record-breaking numbers of people going to the voting booths, and the ever-increasing time people spend engaged in the media, political ads have received more popularity and funding. Therefore, it's likely these ads propped up UONE's earnings. This also accounts for the decline in earnings, after the election cycle was over.
Consistent earnings make it easier to accurately estimate the future growth and value of the company. In this regard, UONE does not provide a clear picture to follow moving forward.
Since earnings and price per share don't always give the whole picture, it's good to look at other factors like the gross margins, return on equity, and return on invested capital.
Return on Equity
Return on equity has decreased considerably in recent years. Beginning a downward trend in 2018, UONE ROE has quickly entered a free fall. Their latest numbers from 2022 reflect an upward rebound, although they are well short of 2018 ranges. Currently, their 5-year average is still high, as it includes the 2018 numbers as well. For return on equity ((ROE)), I look for a 5-year average of 16% or more. UONE's ROE is nearly double this requirement, boasting a 5-year average of 30.72%.
Let's compare the ROE of this company to its industry. The average ROE measured across 26 broadcasting companies is 20.76%
Also, when removing the outlier year of 2018, the average 4-year ROE is 6.55. Therefore, UONE's ROE fails to meet my requirements.
Return on Invested Capital
UONE's Return on Invested Capital ((ROIC)) has shown great fluctuation over the last five years. UONE's ROIC fell sharply from 2018-2019. Although it's rebounded upward since then, it still hasn't reached 2018 levels yet. UONE's most recent update reflects this, officially reporting a ROIC decline of nearly 11.5% when you compare 2023 ROE with that of 2018. For return on invested capital ((ROIC)), I also look for a 5-year average of 16% or more. UONE's 8.72% average falls well short of this requirement.
Gross Margin Percent
In recent years, UONE's gross margin percent ((GMP)) has seen steady, upward trends. In 2022, they recorded their highest GMP yet at 74.7%. Five-year GMP average is holding at around 72.42%. I typically look for companies with gross margin percent consistently above 30%. UONE's impressive GMP is more than double this number.
Financial Stability
Looking at other fundamentals involving the balance sheet , we can see that the debt-to-equity is greater than 1. This is a negative indicator, telling us that the company owes more than it owns.
UONE's Current Ratio of 2.55 indicates the company's ability to use its assets to pay its short-term debt.
Ideally, we'd want to see a Current Ratio of less than 1, so UONE has an acceptable Current Ratio.
According to the balance sheet, the company appears to be in so-so financial health. In the long term, the company may not have enough assets to cover its debts. In the short term, the company is generating enough cash flow to fulfill its obligations.
UONE does not currently pay a regular dividend.
This analysis wouldn't be complete without considering the value of the company vs. share price.
Value Vs. Price
The company's Price-Earnings Ratio of 9.47 indicates that UONE might be underpriced when comparing UONE's current P/E Ratio to a long-term market average P/E Ratio of 15.
The Estimated Value of the Stock is $7.84, versus the current stock price of $5.38. This indicates that UONE is currently selling at a bargain price.
Summarizing the Fundamentals
According to the facts, UONE is financially shaky in the long-term sense of not having enough equity as compared with debt. The EPS over the past 10 years has been inconsistent, with some years of negative earnings. The ROIC and ROE have been on a declining trend.
More about UONE's financials will be revealed in the coming weeks as we approach their November, 30th 2023 NASDAQ hearing. In the meantime, given their potential NASDAQ delisting, and the negative consequences surrounding it, UONE will look to fall back on their political advertising opportunities to help improve their future outlook.
In terms of valuation, my analysis shows that the stock is slightly undervalued.
UONE Vs. The S&P 500
Now, let's see how UONE compares versus the U.S. stock market benchmark S&P 500 over the past 10 years. From the chart below, we can see that for the majority of the last 10 years UONE stock has been outperformed by the general market. Barring large, irregular spikes in UONE as seen in 2014, 2020, and 2022, UONE consistently has failed to meet general market levels.
Forward-Looking Conclusion
Over the next five years, the analysts that follow this company are expecting it to grow earnings at an average annual rate of 8.95% .
In addition, the average one-year UONE)&text=The%201%20analysts%20offering%2012,a%20low%20estimate%20of%206.00." > price target for this stock is at $6.00 which is about a 11.94% increase in a year.
The Expected Annual Compounding Rate of Return is -17.51%.
Does UONE Pass My Checklist?
- Company Rating 70+ out of 100? NO (47.2).
- Share Price Compound Annual Growth Rate > 12%? NO (5.76%).
- Earnings history mostly increasing? NO.
- ROE (4-year average 16% or greater)? YES (6.55%).
- ROIC (5-year average 16% or greater)? NO (8.72%).
- Gross Margin % (5-year average > 30%)? YES (72.41%).
- Debt-to-Equity (less than 1)? NO (3.00).
- Current Ratio (greater than 1)? YES (2.55).
- Outperformed S&P 500 during most of the past 10 years? NO.
- Do I think this company will continue to successfully sell their same main product/service for the next 10 years? UNSURE.
UONE scored 3/10 or 30%. Therefore, UONE may not be worth pursuing as a potential investment.
Is UONE currently selling at a bargain price?
- Price Earnings less than 16? YES (9.48).
- Estimated Value greater than Current Stock Price? YES (Value $7.84 > $5.38 Stock Price).
Valuation metrics suggest that UONE is selling at a bargain price as indicated by the Estimated Value. UONE's current Price Earnings Ratio is inside of target ranges as well.
In conclusion, I am definitely not interested in investing in Urban One, Inc. The fundamentals are inconsistent and some are on a downward trend. The potential delisting of UONE is worrisome. Finally, the stock has poor growth potential and much risk.
For further details see:
Urban One And Its Real Value