The entertainment industry has been under strain as a result of macroeconomic challenges. So, I think it could be wise to wait for a better entry point in Sony Group Corporation (SONY) for reasons discussed throughout this article. However, it could be wise to avoid The Walt Disney Company (DIS), considering its weak fundamentals.
As the cost of living continues to climb, more consumers are attempting to reduce their spending. The consequence of this lowered spending could lead to consumers canceling some subscription services in order to save money, affecting the entertainment industry.
Also, the entertainment industry’s streaming wars, which began with a pursuit of subscribers, have now developed into a furious struggle for ad dollars, driven by a renewed focus on profitability. With expected price increases and industry upheaval, the streaming business's future remains uncertain.
Let us look deeper into the fundamentals of the featured stocks.
Stock to Hold:
Sony Group Corporation (SONY)
Headquartered in Tokyo, Japan, SONY designs, develops, produces, and sells electronic equipment, instruments, and devices for the consumer, professional, and industrial markets in Japan, the United States, Europe, China, the Asia-Pacific, and internationally.
SONY’s forward EV/Sales multiple of 1.62 is 42.4% higher than the industry average of 1.14 while its forward EV/EBITDA multiple of 9.35 is marginally lower than the industry average of 9.40.
SONY’s trailing-12-month gross profit margin of 27.25% is 22.6% lower than the 35.19% industry average, while its trailing-12-month net income margin of 8.12% is 87.4% higher than the 4.28% industry average.
SONY’s total sales and financial services revenue increased 29.5% year-over-year to ¥3.06 trillion ($21.82 billion) in the fiscal fourth quarter that ended March 31, 2023. Its net income per share attributable to SONY’s stockholders increased 16.4% year-over-year to ¥103.53. Also, its total costs and expenses increased 38.1% year-over-year to ¥ 2.94 trillion ($20.95 billion).
SONY’s revenue is expected to increase marginally year-over-year to $17.41 billion for the fiscal first quarter ending June 2023. Also, its EPS is expected to decline 22.8% year-over-year to $1.02 in the same quarter.
The stock has gained 33.2% over past nine months to close the last trading session at $95.98. However, the stock declined 4% over the past month.
SONY’s POWR Ratings reflect uncertainty. The stock has an overall rating of C, equating to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SONY also has a C grade for Value, Momentum, Stability, and Quality. It is ranked #5 out of 14 stocks in the Entertainment - Media Producers industry. Click here for the additional POWR Ratings for Sentiment, and Growth for SONY.
Stock to Avoid:
The Walt Disney Company (DIS)
DIS operates as an entertainment company worldwide. It operates through two segments, Disney Media and Entertainment Distribution; and Disney Parks, Experiences, and Products.
DIS’ forward EV/Sales multiple of 2.36 is 29.5% higher than the industry average of 1.82. Its forward Price/Sales multiple of 1.80 is 60.9% higher than the industry average of 1.12.
DIS’ trailing-12-month gross profit margin of 33.04% is 33.4% lower than the industry average of 49.59%, while its trailing-12-month asset turnover ratio of 0.43x is 13.4% lower than the industry average of 0.49x.
During the fiscal 2023 first quarter ended March 31, 2023, DIS’ costs and expenses increased 10.7% year-over-year to $19.54 billion. The company’s after-tax income excluding certain items, decreased 9% year-over-year to $1.92 billion, while EPS, excluding certain items, came in at $0.93, down 13.9% year-over-year.
Over the past nine months, the stock has lost 11.5% to close the last trading session at $88.10.
DIS’ has an overall D rating, equating to a Sell in our POWR Ratings system.
It also has a D grade for Momentum. It is ranked #9 in the same industry. Beyond what is stated above, we’ve also rated DIS for Value, Stability, Sentiment, Quality and Growth. Get all DIS ratings here.
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SONY shares were trading at $90.58 per share on Monday afternoon, down $0.56 (-0.61%). Year-to-date, SONY has gained 19.03%, versus a 13.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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