The New York Times has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 9.2% to $76.73 per share while the index has gained 11.4%.
Is now the time to buy The New York Times, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think The New York Times Will Underperform?
We’re cautious about The New York Times. Here are three reasons why there are better opportunities than NYT, plus one stock we’d rather own.
1. Weak Growth in Subscribers Points to Soft Demand
Revenue growth can be broken down into changes in price and volume (for companies like The New York Times, our preferred volume metric is subscribers). While both are important, the latter is the most critical to analyze because prices have a ceiling.
The New York Times’s subscribers came in at 12.52 million in the latest quarter, and over the last two years, averaged 12% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. Weak Operating Margin Could Cause Trouble
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses — everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
The New York Times’s operating margin has been trending up over the last 12 months and averaged 14.9% over the last two years. The company’s higher efficiency is a breath of fresh air, but its suboptimal cost structure means it still sports inadequate profitability for a consumer discretionary business.
3. Cash Flow Margin Set to Decline
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Over the next year, analysts predict The New York Times’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 18.7% for the last 12 months will decrease to 17.3%.
Final Judgment
The New York Times doesn’t pass our quality test. That said, the stock currently trades at 25.8× forward P/E (or $76.73 per share). This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now. We’d recommend looking at one of our all-time favorite software stocks.
Stocks We Would Buy Instead of The New York Times
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