What a time it’s been for E.W. Scripps. In the past six months alone, the company’s stock price has increased by a massive 92.4%, reaching $4.39 per share. This run-up might have investors contemplating their next move.
Is now the time to buy E.W. Scripps, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think E.W. Scripps Will Underperform?
Despite the momentum, we're swiping left on E.W. Scripps for now. Here are three reasons you should be careful with SSP and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Regrettably, E.W. Scripps’s sales grew at a weak 3% compounded annual growth rate over the last five years. This was below our standards.
2. New Investments Aren’t Moving the Needle
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, E.W. Scripps’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.
3. High Debt Levels Increase Risk
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
E.W. Scripps’s $2.59 billion of debt exceeds the $27.92 million of cash on its balance sheet. Furthermore, its 8× net-debt-to-EBITDA ratio (based on its EBITDA of $331.3 million over the last 12 months) shows the company is overleveraged.
At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. E.W. Scripps could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.
We hope E.W. Scripps can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.
Final Judgment
We cheer for all companies serving everyday consumers, but in the case of E.W. Scripps, we’ll be cheering from the sidelines. Following the recent rally, the stock trades at 6× forward EV-to-EBITDA (or $4.39 per share). This valuation multiple is fair, but we don’t have much confidence in the company. There are better stocks to buy right now. We’d recommend looking at the most entrenched endpoint security platform on the market.
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