Stock Analysis

Unpleasant Surprises Could Be In Store For News Corporation's (NASDAQ:NWSA) Shares

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NasdaqGS:NWSA
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It's not a stretch to say that News Corporation's (NASDAQ:NWSA) price-to-earnings (or "P/E") ratio of 14.1x right now seems quite "middle-of-the-road" compared to the market in the United States, where the median P/E ratio is around 14x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been advantageous for News as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for News

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NasdaqGS:NWSA Price Based on Past Earnings October 3rd 2022
Keen to find out how analysts think News' future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The P/E?

In order to justify its P/E ratio, News would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 89% gain to the company's bottom line. The latest three year period has also seen an excellent 305% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 0.4% each year as estimated by the analysts watching the company. With the market predicted to deliver 9.6% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's curious that News' P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From News' P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that News currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 1 warning sign for News that you need to take into consideration.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

Valuation is complex, but we're helping make it simple.

Find out whether News is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About NasdaqGS:NWSA

News

News Corporation, a media and information services company, creates and distributes authoritative and engaging content, and other products and services for consumers and businesses worldwide.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation3
Future Growth2
Past Performance1
Financial Health4
Dividends2

Read more about these checks in the individual report sections or in our analysis model.

Adequate balance sheet and fair value.