Aaron Rodriguez
Dr. Rascher
Sports Economics and
Finance
March 24,2020
The
companies that an unsophisticated investor should invest in are Activision
(ACTVI), Disney (DIS) and Skechers (SKX). The most I invested in was
Activision, with 8,253 shares. I decided to invest in them the most because
they seemed to have the most potential for growth since they are in the Esports
space. They are a major player with established games which they can capitalize
on through streaming licensing and branding opportunities. I invested 5,038
shares in Disney. Disney has potential for growth because they are looking to
expand their Disney+ platform as well as the content which they provide. In the
efforts leading up to their release of Disney+ they bought 21st
Century Fox. This is a major move as it adds more content to Disney’s; Disney
Originals, Lucasfilm productions and Marvel Studios productions as well as
studios that reach a broader audience with ABC and ESPN. While they transition all
their content over to be exclusively on Disney+, ESPN+ and ABC app. This gives
them more control over the profits of the content and the direction of the
stories they wish to tell in the future by giving them the ability to expand
their stories with new characters acquired by 21st Century Fox. The
third company that I invested in was Skechers. Skechers was the company that I
invested the least amount of money because although they are looking to expand
their business by opening new locations domestic as well as overseas. Compared
to the other businesses that I have invested in they seem to have the least
potential for growth that is why I invested the least into them. However, their
moves towards expanding their business has me excited as an investor as it
shows that the company will look at new avenues of increasing profits.
Disney:
Disney has been a longstanding company who continually has been pushing
the entertainment field. Disney has always pushed entertainment technologies
from the company’s inception. Their use of color animation in the beginning to
their use of combining live action with animated film. Now they look to push
the way that media is consumed today with their use of streaming platforms. As
an investor it would be beneficial to invest in a company such as this because
they have established brands but are looking for new ways for those brands to
be consumed. Whether it be from new theme park attractions, streaming services
or new production releases.
The first thing that an investor should look at is a company’s beta. This
allows someone to understand what the stocks tendency will be in relation to
the rest of the stock market. Disney’s beta is 1.04, this means that the
company will have very little difference to the overall stock market. This
signifies to an investor that it has long term growth potential because in
general the U.S. economy tends to grow at a steady pace. Currently Disney has a
dividend yield of 1.6% this is quite low because as an investor you would want
between 4-6%. However, this is ok in the case of Disney because they are
looking at expansion and their stock price continues to climb at a consistent
rate. This continued growth could lead to a company to increase their dividend
yield over the years. Before the Corona Virus Pandemic, the stock price was at
$139.54 at the begging of the year the stock price was at $109.61. This means
that there was 26.8% increase in the stock price over one year. This drastic
increase in price proves that the company is retaining value despite not paying
a high dividend yield and an investor can remain excited about the stock.
In the past quarter Disney has grown in their P/E ratio 33.2% and in the
previous quarter they grew 10.6%. This means that the company is on an upward
trend when it comes to the price of their stock in comparison to their earnings
which is good for an investor because it shows a trend of an increase in the
value of their stock. Disney is a good stock to invest in because they have established
brands and are always looking to expand their sources of revenue through
technology and branding opportunities. Branding opportunities can be
capitalized through merchandizing and licensing. With an increase in revenue
streams Disney will continue to grow their profits while diversifying their
income with the new brands that they can profit from. With all of these ne
streams of revenue good things to look at are return on equity and return on
assets this will show how efficient the company is at using its resources the
ROA is 4.72% while the ROE is 12.93%. These two ratios show that the company
has a lot of room to grow which show to an investor that their investment has
room to grow as well. With healthy numbers of ROA and ROE and a growing P/E
ratio Disney proves to be a great stock to invest in.
Skechers:
Skechers has a beta of 0.9, this means that the company performs slightly
worse than the overall market. This is ok, as a company because it will still
have the general benefit of an economy such as the U.S. but it offers the
company the ability to improve to closer align with the rest of the economy. Currently,
Skechers does not pay out dividends. However, as they are looking to expand
their business domestically as well as overseas, they may look to offer
dividends to entice foreign investors as well as incline domestic investors to
buy more stocks.
Skechers total revenue has increased 12.4% in the previous quarter and
11.5% in the quarter before that. This shows their ability to bring in money,
this is important because it is an important factor when determining how a
stock will fluctuate and what earnings will look like as an investor. The next
thing to look for is the net income to see the relationship between the revenue
and expenses. In the previous quarter net income increased 15.1% and the
quarter before that they grew 68%. This relationship shows their recent news in
investing in opening new stores.
Two quarters ago they increased their amount of money to spend on the
opening of the new stores which was reflected in the next quarters net income.
This is also important because even while they are spending their money, they
are still brining more money than they are spending. One of the ratios that is
important is price to earnings ratio. Price to earnings has increased by 10.9%
in the previous quarter and 7.7% in the quarter before that. This shows that
there is faster growth in the value of the stock for investors to profit off. This
is also backed up by their profit margin of 6.61% which is a great profit
margin since it is under 10%. Their operating margin is at 9.89% which is
slightly lower than Nike but is above Under Armour. This puts them in the upper
echelon of their industry which is important because this will show that their
operations have room for flexibility as they use other resources for expansion.
Activision:
Activision is another stock that is great to invest in. The world of
Esports is expanding and one of the top developers in the industry is
Activision They produce games such as Hearthstone, Call of Duty and World of
Warcraft, which combined have hundreds of millions of players. These strong
brands could prove beneficial in the future as they learn to capitalize on their
large audience base and start to break into mainstream culture. Activision has
a beta of 0.5 which means that it has half the amount of movement that the rest
of the economy does. This is good for a stock because it shows that it will
have steady growth no matter what the economy status is. Currently, Activision
has a dividend yield of 0.41 which is very low. However, as the industry begins
to grow their dividend yield will increase. This should be exciting as an
investor because the industry of Esports is expected to grow. According to Business
Insider, the Esports industry is expected to grow in viewership at a 9%
annual compounded growth. In 2019 Esports had a viewership of 454 million
viewers and in 2023 the industry is expected to have 646 million viewers. This
is an increase of almost 200 million viewers over a 4-year period.
With an increase in viewership this means that there will also be an increase
in demand for products. This allows a company like Activision to position
themselves as having the top games and this will allow them to profit off
character merchandising, licensing as well as streaming their content to more
platforms in the future. Over the past 3 quarters the price to earnings ratio
has continuously increased. Last quarter they increased at a rate of 15.4%
while the quarter before that they increased their price to earnings at a rate
of 16.7%. Although the rate is slowing the company continues to improve which
is a good sign to an investor. This shows that the company is continuing to
improve and as more people become interested in Esports there will be more
money made for investors. Activision has recently struck a deal with Disney to
broadcast professional Overwatch matches on ESPN, ABC and Disney Channel. This
will position Activision as a pillar of Esports as they expand their audience
by streaming on these platforms.
Currently their profit margin is at 23.16% which is good since it is
above 20% while their operating margin is 26.88% meaning that for every dollar
in revenue almost 27 cents in profit is made. This is higher than their main
competitors Electronic Arts Inc. (23.31%) and Take Two Interactive Software at
(15.29%). This means that for an investor in the Esports industry, Activision
would be the best company to invest in because they are operating at the
highest level and have a multitude of expansion opportunities ahead which they
will increase profits more for investors since they are already the most
efficient in the industry.
Conclusion:
In conclusion; Disney, Skechers and Activision are great stocks to invest
in because of their increasing financial gains as well as their ventures into
expanding their streams of revenue. In the case of Disney and Activision they
are looking to expand the way that people watch their content. While in the
case of Skechers they are looking to expand the number of locations they have
as well as expand their consumer base overseas. These developments should
excite investors because it will drive up the value of a stock which can lead
to higher dividend payouts or in the future, they can profit off selling their
stock to other buyers.
Charts
5-year stock price outlook
Bibliography
Activision Blizzard,
Inc (ATVI) Valuation Measures & Financial Statistics. (2020, March 24).
Retrieved March 23, 2020, from
https://finance.yahoo.com/quote/ATVI/key-statistics?p=ATVI
Electronic Arts Inc.
(EA) Valuation Measures & Financial Statistics. (2020, March 24). Retrieved
March 23, 2020, from https://finance.yahoo.com/quote/EA/key-statistics?p=EA
Nike, Inc. (NKE)
Valuation Measures & Financial Statistics. (2020, March 24). Retrieved
March 23, 2020, from https://finance.yahoo.com/quote/NKE/key-statistics?p=NKE
Noonan, K. (2019,
August 3). Top Esports Stocks to Buy in 2019. Retrieved March 23, 2020, from
https://www.fool.com/investing/top-esports-stocks-to-buy-in-2019.aspx
Reyes, M. S. (2019, December 18). Esports
Ecosystem Report 2020: The key industry players and trends growing the esports
market which is on track to surpass $1.5B by 2023. Retrieved March 24, 2020,
from https://www.businessinsider.com/esports-ecosystem-market-report
Skechers U.S.A., Inc.
(SKX) Valuation Measures & Financial Statistics. (2020, March 24).
Retrieved March 23, 2020, from https://finance.yahoo.com/quote/SKX/key-statistics?p=SKX
Sun, L. (2019,
February 13). 5 Reasons Skechers Stock Could Keep Soaring. Retrieved March 23,
2020, from
https://www.fool.com/investing/2019/02/12/5-reasons-skechers-stock-could-keep-soaring.aspx
Take-Two Interactive
Software, (TTWO) Valuation Measures & Financial Statistics. (2020, March
24). Retrieved March 23, 2020, from
https://finance.yahoo.com/quote/TTWO/key-statistics?p=TTWO
Under Armour, Inc.
(UA) Valuation Measures & Financial Statistics. (2020, March 24). Retrieved
March 23, 2020, from https://finance.yahoo.com/quote/UA/key-statistics?p=UA
Universal Corporation
(UVV) Stock Price, Quote, History & News. (2020, March 24). Retrieved March
23, 2020, from https://finance.yahoo.com/quote/UVV?p=UVV&.tsrc=fin-srch
Walt Disney Company
(The) (DIS) Valuation Measures & Financial Statistics. (2020, March 24).
Retrieved March 23, 2020, from
https://finance.yahoo.com/quote/DIS/key-statistics?p=DIS
Each
student must defend their choices as if they were a mutual
fund manager presenting the information to an
unsophisticated
investor
by
writing
a 4+ page paper (text is
4+
pages, relevant tables are
expected
and are addition
al
pages, 1.5 spacing)
analyzing
their decision using f
inancial
analysi
s
to be turned
in
on Lecture 3
. We will discuss the areas
to cover in class. All
papers
must contain the names of the
three
publicly traded stocks chosen
,
their ticker symbol, and t
he
amount of th
e
$1 million
to
be invested in total for all 3 stocks.
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