3 Entertainment Stocks That Will Entertain You All the Way to the Bank
Entertainment stocks are some of the more interesting names to research, but besides the opportunity to invest in fun, familiar brands, stocks in this category can sometimes represent high-potential investment opportunities.
The “show business” end of the entertainment sector is at a crossroads. It all has to do with the sweeping changes in how the world consumes entertainment.
Shares in “old school” media conglomerates continue to be hit hard by the uncertainty over whether they can make the pivot towards streaming-focused business models, without sacrificing profitability.
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However, with this uncertainty comes the potential to invest in many such “old school” media stocks at favorable prices.
Outside of “show business,” there is great opportunity to capitalize on economic headwinds like inflation normalizing. If the U.S. economy experiences a “soft landing,” and consumer confidence bounces back, companies specializing in “in person” entertainment could benefit greatly.
With this, let’s take a look at three entertainment stocks that fit into either of these two categories.
Nexstar Media Group (NXST)
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Nexstar Media Group (NASDAQ:NXST) has diversified in recent years, but remains primarily an owner/operator of broadcast television stations. Despite being “old media,” Nexstar has a successful history of acquiring and profiting from these assets.
As discussed in past NXST stock coverage, the 2024 election cycle leaves the company well-positioned to experience a large boost in profitability. Sell-side forecasts call for Nexstar to report earnings of $25.92 per share this year. That’s around a 164.5% increase compared to reported earnings for 2023 ($9.80 per share).
Nexstar could use this windfall to ramp-up its “return of capital” efforts. As discussed in its latest quarterly earnings release, Nexstar bought back 8.7% of shares outstanding in 2023, and has raised its dividend (forward yield of 4.16%) for the 13th year in a row.
Paramount Global (PARA)
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Paramount Global (NASDAQ:PARA) is one of the entertainment stocks garnering a lot of press lately. Mostly, due to its status as a takeover target.
The company’s assets, namely its film and television content library, plus its streaming networks (Paramount Plus, Pluto TV) make it a great “bolt on” opportunity for a strategic buyer.
Admittedly, the “merger mania” that provided a boost for PARA stock has faded in recent weeks. Halted merger talks with Warner Bros. Discovery (NASDAQ:WBD), plus a mixed earnings report have placed additional pressure on shares. Still, this may work to your advantage.
Trading at a highly discounted valuation (10 times forward earnings), it may not take much to drive a comeback for PARA shares. A bidder could still emerge, offering to buy out the company at a big premium. In the quarters ahead, more signs may emerge that Paramount’s streaming transformation is playing out.
Dave & Buster’s Entertainment (PLAY)
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Dave & Busters Entertainment (NASDAQ:PLAY) operates entertaining and dining venues that can be best described as Chuck E. Cheese for adults. After being severely affected by the Covid-19 pandemic, the company has been making a big comeback in recent years.
This has resulted in PLAY stock bouncing back by more than eightfold from its 2020 lockdown lows. However, even after this stunning run-up in price, Dave & Busters remains one of the best entertainment stocks to buy. After climbing back to pre-pandemic levels during the just-closed fiscal year (ending January 2024), another wave of big earnings growth may lie ahead.
New store openings, plus the impact of a large share repurchase last year, may result in the company experiencing a 23.6% increase in earnings for the fiscal year ending January 2025. Trading at a more-than-reasonable 14.8 times forward earnings, there may be room for a re-rating to the upside.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
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