Company Profile: Lionsgate Films


I love movies and television.  Lions Gate Entertainment Corporation (Lionsgate) has made some good productions in respect to both: The Hunger Games, Twilight, American Psycho, Fahrenheit 9/11, La La Land, Nashville, Orange is the New Black and the upcoming Wonder to name a few. I decided to profile Lionsgate this week to see how the movie business is looking today and into the future.  

·      As I state many times on my site, I am not a financial advisor and have no financial accreditations whatsoever. I am applying some basic evaluation tools to this stock along with some commentary but this should only serve as a starter for your further research. The information below is only current to the day this post was written which may or may not be the same day as this post was published so please update the ratios and numbers to the current day before relying on them as they may have significantly changed (see How to Evaluate a Stock- Part One for information on where to find the ratios and numbers online). Please read my Legal Disclaimer.  Also, I do not own Lionsgate stock and am not affiliated with them in any manner.    

What is Lionsgate? 

Lionsgate, a company that started in Vancouver but is now headquartered in Santa Monica, describes itself as a “premier next generation global content leader”. Here are some relevant points about Lionsgate’s business and future prospects:

·      Recently acquired STARZ premium pay services which reaches approximately 25 million subscribers (second largest pay network in the US);

·      Owns a 16,000-title film and television library, one of the biggest content catalogues in the world;

·      Planning theme park attractions, rides and exhibitions in the US, UK, Europe, Middle East, Australia and China (to that end, an indoor entertainment complex based on such Lionsgate movies as The Hunger Games is set to open in 2018 in Times Square, along with Mad Men theme food options and entertainment.  One is already open in Dubai - see picture below);

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·      Has a multi-year distribution deal with STUDIOCANAL, Europe’s leader in production, rights acquisition, distribution and international sales of feature films and TV series as well as acting as a distributor for other leading content companies worldwide;

·      Recently obtained first look rights to all new TV projects developed and produced by John Goldwyn who appears to have produced many hits (Dexter, Manhunt: Unabomber, Forrest Gump, Braveheart, Titanic, etc.);

·      It is working to build its brand in India and has appointed an experienced media person to head up its new Mumbai office;

·      Is pursuing and growing into games and virtual reality; and

·      Has a portfolio of companies it works with to distribute content targeted to specific audiences (e.g. Hispanic audiences in the US);

Lionsgate acquisition of Starz and thus its further diversification into the TV segment will likely help it weather the ups and downs that often come with the hit or miss nature of movie releases. The entry into the theme park area is a potentially large area of growth for the company which will also help diversify its interests.  Also, its commitment to move into a more international market is a required growth strategy for any major media company. 

The demand for good movies will always be there – humans love to be entertained!  But the key is obviously producing good movie and TV content and that is the challenge for all media companies.  Lionsgate looks to have solid, industry experienced people running their business and they appear to be looking ahead to other interests knowing that movies can be fickle in their success rate.  It is also alive to the riskiness of film production and is employing a risk mitigated approach to making movies which includes having international licensing cover a substantial portion of production costs, choosing to film in locations that maximize tax credits and seek other entities to co-finance what is the expensive undertaking of filming and producing a movie.  Overall, Lionsgate looks to be moving in all the right directions and is continuing to keep good content at the heart of its decisions. 

What is Lionsgate’s stock doing?

First off, note that you can purchase LGF.A or LGF.B stock.  LGF.A has shareholder voting rights attached whereas LGF.B does not.  For the purposes of our analysis, we will examine the slightly more expensive A stock. 

As at November 13, 2017, the numbers from our basic stock evaluation tools are as follows:

Share price: $30.65 USD

One share of Lionsgate would cost you $30.65.  The price over the past year has ranged from $24.27 to $33.68.

Price to Earnings (P/E): 29.2

Recall this is the stock price divided by the earnings per share. If the P/E is high, you should expect to get some growth for having paid a bit more for the stock however, it could indicate the stock is overvalued.  The industry average here according to Morningstar is 21.8 so Lionsgate is slightly higher but not overly so. To put this figure into perspective, the market is giving Lionsgate a value equal to 29.2 years of its earnings.  In other words, the market is expecting to see some growth from Lionsgate in the future because in effect, it is paying for what it expects to gain in those future years.

Dividend Yield: --

Dividend paying stocks are something many investors look to buy as they are like an interest rate on your shares. Dividend payouts are discretionary. Dividend yield represents the amount the company pays out in dividends relative to its share price. While a higher dividend yield is usually more desirable, you still need to consider the health of the underlying company before making a generalization either way. Lionsgate suspended their dividend payout in 2016.  Usually this is a result of a need to keep in the money in the business. 

Earnings per Share (EPS): $1.07 TTM (Trailing Twelve Months – the number is taken from the past 12 months)

This figure will tell you a great deal about the growth of the company. It takes what the company earns and divides it by the number of shares outstanding. It is essentially the profit allocated to each share of the company. The bigger the number the better because the more the company earns, the more attractive it is to investors. EPS that is increasing every quarter shows earnings momentum and shows growth potential. 

Lionsgate shares earn $1.07 per share and has increased in the past five years but experienced a drop in 2016 and 2017.

Revenue: $3,955,000,000.00 TTM (Trailing Twelve Months)

Increasing revenue is a good sign that the company is growing. If you look at past revenue figures, Lionsgate’s Revenue has more or less grown every year.  Indeed, its Revenue is up from the $3,202,000,000.00 made from last year.     

Return on Equity: 11.96% TTM (Trailing Twelve Months)

This figure tells you what sort of return the company is getting on the shareholders money. An increasing ROE is a good sign.  Lionsgate’s ROE last year was 5.93% so this is a significant jump to date.     

Market Capitalization: $6.4 Billion

This indicates Lionsgate is a large cap stock. Recall that small cap stocks usually have the most room for growth as opposed to large, established, stable large cap companies.  It is interesting though as in the case of Lionsgate, while it is a large cap stock, in many respects, investors treat it almost like a growth type company.   

Net Profit Margin: 5.57% TTM (Trailing Twelve Months)

This ratio tells us what profit is left over after the company pays its expenses for the year. The more money it keeps, the better. High net profit margins mean that a company is good at keeping profit after expenses are paid, which may mean they are adept at keeping their expenses down. It is a good idea to compare these over an industry to see what companies are good at operating and maintaining a high net profit margin.

Here, Lionsgate’s net profit margin has fluctuated significantly over the past five years and is currently keeping about 6 cents of profit for each dollar of sales.     

Cash Flow per Share: $3.20 (for the year ended March 2017)

Recall that this number is the cash flow through the business divided by the number of shares outstanding. It represents the net cash a company can produce per share and many investors consider this a better indicator of a company’s health than the more popular, earnings per share ratio. A higher value usually indicates the company is in a healthier position. 

This ratio should be considered along with the EPS figure for a better picture of the company’s health as there should not be a wide discrepancy between the two figures. If there are large variances between those numbers, you may want to consider if there were large, non-recurring one-time items that account for the large variance.    

Price to Sales (P/S): 1.6

This ratio compares the total market value of the company with its sales revenues. There is not a great deal of manipulation a company can do with its sales data so this can be a good indicator of how well the company is doing. Recall that a lower ratio relative to its peers in the industry can indicate a potentially good investment opportunity. Morningstar indicates the industry average is 2.4 so, Lionsgate is close to that average but slightly lower.

Price to Book (P/B): 2.3

This compares the stock price with how much the stock would be worth if the company was liquidated or sold off. If the ratio is greater than one, you are paying more for the stock than the stock’s liquidation value. Lionsgate is at 2.3 and the industry average is 4.1.

Price to Cash Flow (P/CF): 9.2

Having cash left over after expenses are paid off is crucial to remaining in business so this is a good indicator about the health of a company. Generally lower is better as it could indicate the company is obtaining large cash flows not yet reflected in the stock price. Morningstar indicates the industry average for this industry is 15.7 whereas Lionsgate is at 9.2.    

So, there you have it…a basic evaluation of Lionsgate.  This company is actually quite fascinating and its website is a wealth of cool, interesting information about the industry and its upcoming plans.  I really enjoyed looking through its compelling corporation information.  As always, there are tons of articles and discussions online about this stock and all stocks so they are also a good place to look at for further consideration.  Lionsgate is an exciting company with some very neat things on its horizon. 

** Top photo by Noom Peerapong on Unsplash