World Wrestling Entertainment, Inc. (NYSE:WWE) shares were hammered today, briefly trading below $22 as news of Amvona/Lemelson Capital Management’s report making the case to short WWE started to gain greater currency. The report was released almost three weeks ago and as of 1 PM ET today, the stock is down more than 20%. It’s also worth noting that the Amvona fund was up 60% last year after fees.
WWE: Highly overvalued on an historical basis
Amvona’s central argument in their short thesis on World Wrestling Entertainment, Inc. (NYSE:WWE) is that the company is overvalued by almost every possible metric. For starters, the low $30s share prices the stock was enjoying until recently are all-time highs since the stock IPOed 15 years ago. Second, and serious food for thought for any value investor, is the fact that the trailing price-to-earnings ratio is a sky-high 844.
The report also highlights a number of dubious financial and accounting assumptions on the part of WWE’s management.
Finally, the report sums things up with a rather startling review of World Wrestling Entertainment, Inc. (NYSE:WWE) historical earnings performance. “The 10-Year earnings growth rate of the company is -17.3%. The 5 year earnings growth rate is something more substantial at -46.2%. The one year earnings growth rate is a remarkable -91.6%. According to the measurable data there is a faithful “trend” in the wrong direction which has existed for some time. That is to say, the rate at which earnings are diminishing has been accelerating, yet in the last year the share price has appreciated ~262%.”
Network contract renewal likely hyped
The report also points out that any statements by World Wrestling Entertainment, Inc. (NYSE:WWE) management or analysts regarding a much larger network contract in the future are simply unsubstantiated hype. “How is it possible to know if the company will command a significant premium in a renewed contract with a network? Without actually being at the negotiating table, isn’t such postulation speculative?”