Manchester United (NYSE:MANU) Valuation: Is the Stock's Premium Justified After Recent Gains?

Manchester United (MANU) shares have seen notable swings in recent weeks, drawing attention from those following the sports and entertainment sector. As investors look for signals, several factors influencing the stock's trajectory come into focus.

See our latest analysis for Manchester United.

Manchester United’s shares have been gathering steam lately, with a 19.6% jump in the past month signaling renewed investor optimism. While short-term swings have been dramatic, the stock’s overall momentum remains positive. The total shareholder return over the past year is 14%, and almost 40% across three years.

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With robust gains and strong momentum, the question now is whether Manchester United’s stock is trading below its true value or if recent excitement means future growth is already factored in. This leaves investors to wonder if an opportunity remains.

Price-to-Sales Ratio of 3.5x: Is it justified?

Manchester United’s stock trades at a price-to-sales ratio of 3.5x, noticeably higher than its US Entertainment industry peers. With the last close at $18.20, investors are effectively paying a significant premium for each dollar of the club’s revenues.

The price-to-sales ratio measures how much the market values the company’s revenues. It is often used for companies that are unprofitable, as it provides insight into how much investors are willing to pay for a company’s top line rather than bottom-line profits.

In Manchester United’s case, the premium multiple suggests the market is factoring in optimism for future growth. However, the company remains unprofitable and its recent growth has lagged behind peers. This high ratio of 3.5x stands out against the US Entertainment average of 1.9x, the peer average of 1.8x, and an estimated fair price-to-sales ratio of only 2.2x. This indicates the stock could face downward pressure if future results do not justify the current optimism.

Explore the SWS fair ratio for Manchester United

Result: Price-to-Sales of 3.5x (OVERVALUED)

However, weaker-than-expected revenue growth or continued net losses could quickly challenge the sustainability of recent investor optimism around Manchester United shares.

Find out about the key risks to this Manchester United narrative.

Another View: Discounted Cash Flow Says Undervalued

While the premium price-to-sales ratio suggests Manchester United may be overvalued, our DCF model offers a different angle. Based on projected future cash flows, the shares appear to be trading about 12% below their fair value. This raises the question of whether the market is underestimating the club’s long-term earning potential.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Manchester United for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Manchester United Narrative

If you’re inclined to challenge these conclusions or would rather investigate the numbers on your own, it takes less than three minutes to build your personal narrative: Do it your way

A great starting point for your Manchester United research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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