Paramount (PARA) stock has been dragged down amid the broader sell-off in media and video-streaming names over the past few months, thanks to subscriber losses over at Netflix (NFLX). Undoubtedly, the weakness at Netflix has many investors and analysts second-guessing the streaming market and just how much one should pay for such exposure.
The early days of streaming saw incredible growth. As it matures further, with more rivals like Paramount, getting in on the streaming wars, growth could prove much harder. Further, the profitability prospects may be far less than initially expected. Despite doubts about streaming, I think that the recent selling across the board has been overdone.
Paramount stock, the firm behind Netflix rival service Paramount+, isn’t just one of the cheapest ways to play the SVOD (Streaming Video on Demand) market. Still, it’s also one of the cheapest stocks out there on a trailing earnings basis, with a mere 5.74 trailing price-to-earnings (P/E) multiple. That’s a bottom-of-the-barrel valuation that may seem too good to be true.
The firm, formerly known as ViacomCBS, has endured more than its fair share of volatility. As the streaming waters begin to settle, battered names like Paramount could have a lot of room to run in a potential correction to the upside.
On TipRanks, PARA scores a 9 out of 10 on the Smart Score spectrum. This indicates a high potential for the stock to outperform the broader market.
Paramount Stock: A Cigar-Butt Bet or Something More?
For now, many will view Paramount stock as a value trap. However, Warren Buffett’s Berkshire Hathaway (BRK.A)(BRK.B) seems to suggest real value in the stock at these depths. Buffett and his firm are all about deep value, especially in a market that’s punished those who’ve shied away from the valuation process.
While Paramount may appear to be a classic “cigar-butt” stock — the troubled, deep-value plays that Buffett loved to buy in his early days before insisting on wonderful businesses at fair-to-wonderful prices — there are reasons to believe that the risk/reward is too good to pass up here.
Personally, I’m siding with Berkshire, who views real value to be had in the stock here. Paramount stock does offer one of the lowest prices of admission into the streaming space, after all. I am bullish on PARA stock at around $34 per share.
A Cheaper Way to Bet on Streaming Than Netflix
It’s been such a painful drop for Netflix, the king of streaming. After a more than 70% tumble from its peak, shares of NFLX trade at 17.9 times trailing earnings at just shy of $200 per share. With so much great content and the addition of mobile games, the value proposition could increase with time. However, the pandemic pull-forward and a relative “drought” of new content may be causing some to hit the cancel button.
Indeed, a mid-to-high teens P/E multiple discounts Netflix’s growth profile. With macro headwinds and intensifying competition, the stock could fluctuate wildly as the market looks to finalize its valuation reset.
Though Netflix could prove undervalued here, it’s likely going to be more expensive to retain subscribers with the growing number of rivals in streaming. Sure, Netflix remains a streaming leader. But it’s Netflix’s lead to lose as rivals ramp up on content spending in an environment where consumers are bound to be more selective.
It will be tough for Netflix to play defense, with many other firms bundling their video-streaming platforms alongside other services. Further, lower-cost streamers like Paramount+ could nibble away into the share of a pricier, premium video streamer like Netflix.
Though Paramount doesn’t have the strongest content lineup or pipeline in the space, its valuation already reflects such. Regardless, Paramount+ has seen solid subscriber gains amid its direct-to-consumer push. Though Paramount faces headwinds in its television and studio businesses, the growth in Paramount+ is hard to ignore, powered by must-see hit films such as Halo.
In the most recent quarter, subscription sales soared 95%. That’s impressive top-line growth. The bears may view such strength as cannibalizing the TV business. However, I consider such strength an opportunity to take share in a streaming market ripe for disruption at the hands of some of the underdogs.
Indeed, there’s a lot to gain as Paramount doubles down on streaming. Even if it can’t keep up with rivals, the valuation is already so depressed that a Netflix-like plunge from here is doubtful.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, PARA stock comes in as a Hold. Out of 17 analyst ratings, there are seven Buy recommendations, seven Hold recommendations, and three Sell recommendations.
The average Paramount price target is $34.82, implying an upside of 1.43%. Analyst price targets range from a low of $24.00 per share to a high of $49.00 per share.
The Bottom Line on Paramount Stock
Streaming isn’t dead; it’s likely just hitting a roadbump, as consumers tighten their budgets. As one of the cheaper streamers, Paramount stock looks like real value. Berkshire Hathaway looks to be right on the money, and it’s hard to pass up an opportunity to land a cost basis similar to that of Warren Buffett’s firm.
As an underdog, there’s not much expectation baked in, paving the way for potential upside surprises once the broader streaming industry finds its footing.
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