2023-03-16 07:43:06 ET
Summary
- Vince McMahon loves his company and is also set in his ways. That is not a good combination for a potential buyer.
- A 50% premium being sought by WWE is unlikely to come through.
- I am upgrading the stock to a Hold but with caveats.
I wrote this article in November, reviewing World Wrestling Entertainment ( WWE ) while giving the stock a "Sell" rating. The stock went as low as $67 before the news that the company was willing to put itself up for sale sent it into the $90s. As of this writing, the stock is back into the $80 region, just like during my November review. With all the recent happenings, it is time to revisit the story. Let us get into the details.
Bet My Script
The news that the company is considering Legal betting on its scripted matches is interesting. Yes, you read that right. Betting on scripted outcomes sounds too crazy to be true but it already is happening in a few places like the Academy Awards as mentioned in the Seeking Alpha report.
The most obvious red-flag with this is that at least a handful of people will know the outcome ahead of the match. This is not the 1980s where people thought Hulk Hogan was really fighting for USA or the 1990s where people thought The Undertaker was really a ghost. With dirt-sheets and rumor sites dime a dozen, it is almost impossible for not just the company stars but even the live audience and the internet at large to not know ( at least speculatively ) about big surprises.
The Vince In the Room
Vince McMahon, while highly regarded as an astute businessman who isn't afraid to bend the rules, is known to be fickle from both creative and business stand-points. While he claims to be ready to walk away at the right price, it is plausible that he finds it hard to walk away when he really faces that situation. After all, WWE as it stands today is almost as old as his daughter, Stephanie McMahon who recently stepped down from her role as co-CEO and an emotional bonding with the company is to be expected. In addition, there have been many rumors in the past about him stepping away, only for those to be squashed with him coming back stronger each time. As a recent example, despite " retiring " in July 2022, he is already back in the mix.
Valuation - Current and Sale
A forward multiple of 30 seems too lofty for an entertainment company when the economy, at best, appears set for a mild recession. The fact that the company missed on both top and bottom lines in the recent Q4 earnings report suggests that things are expected to get tighter here on.
The fact that Vince is reportedly seeking $9 Billion, a 50% premium to the current $6 Billion valuation, lends credibility to the theory that he may be disconnected from reality in more ways than one. The company appears over-valued as it is and we are staring at a recession where the discretionary spending is going to be under pressure. And you see a 50% premium on top of it. I can see the buyers lining up at that price tag (Sarcasm Off).
Technical Indicators
The stock seems to have found its base as shown below, with a strong foothold in the $80s. The 200-Day moving average is interesting at $74, which shows the recent spike up into the $90s was short-lived. A weakening market combined with bad news on the sale front could easily push the stock into the $70s.
WWE Moving Avgs (Barchart.com)
Conclusion
I believe the most sensible recommendation right now is as follows:
- If you already hold the stock and are sitting on substantial gains, trimming your position is advisable. But leave some on the table to be able to reap the rewards should a deal come through.
- If you hold the stock but don't have much gains, stay put. The rumored takeover price targets at $95 and $105 offer the potential for a quick 20% to 30% gain in the speculated three-month time period by which the sale could materialize.
- If you don't have the stock, stay away as the only upside left right now is the sale speculation and the stock is likely to crater if no deal comes through on time.
Overall, the stock is a hold for the time being and I suggest investors sell should it go up into the $90s on further rumors around a sale. This stock, at best, is only a trade and not an investment. Perhaps it has always been one, just like part of its tagline "Then. Now. Forever".
For further details see:
World Wrestling Entertainment: Upgrade To Hold