FUBO Stock Is Worth 48% More Based on Price-to-Sales-Comps

FuboTV (NYSE:FUBO) is a subscription TV service like Hulu, Sling or Roku (NASDAQ:ROKU) whose value is rising as it picks up more subscribers. It looks like FUBO stock is worth at least 85% higher than its price today.

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For example, fuboTV recently predicted that it expects to increase subscribers by up to 41% year-over-year to 770,000 in 2021. If that happens, don’t expect to see FUBO stock at Friday’s price of $20.66 (April 23). It will be substantially higher.

Based on the analysis in my last article on FUBO stock, FUBO stock is worth $30.68, which is 48.5% higher than the price today. It is based on a multiple of 5.52 times forecast 2022 sales of $780 million in sales, or $4.3 billion.

This is 48% than today’s market capitalization of $2.9 billion.

So Why Has FUBO Stock Been Dropping?

In short, the market lost faith in fuboTV. This occurred when the company actually predicted a near-term forecast with lower subscribers. That rarely happens with these types of subscription network companies.

For example, the company talked about “a sequential decline of 2-4% quarter-over-quarter” in revenue during Q1 2021. This is based on a $101 to $103 million forecast for Q1, vs. $105 million booked in Q4.

Similarly, fuboTV forecast Q1 subscriber growth would fall 3% to 5% over Q4. That is simply not going to do anything good for FUBO stock, especially since it’s a highly valued growth stock.

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But the point I am making is that none of these predictions matter. It is simply the company being honest. The truth is the next three quarters will show huge quarterly growth, on both a sequential and year-over-year basis.

One major reason is that fuboTV focuses on sports to draw in its subscription clients. FuboTV makes this its priority. It covers all major professional sports activities on its network, including NHL, NASCAR, MLS, golf, tennis, boxing, MMA and college sports. In addition, it also covers every golf major, tennis major and Triple Crown race as well as full coverage of specials like the Super Bowl, World Series, NBA Finals, Stanley Cup Playoffs and Olympics. By comparison, Sling, Hulu, Roku, and even Disney (NYSE:DIS) cannot claim this.

Another major reason is that more people are “cutting the cord” with their cable TV subscriptions and moving to MVPD (multi-video programming distributors) like fuboTV. FUBO says 1.46 million customers cut the cord from traditional pay-TV in the fourth quarter. This is a major secular move in the market from which the company will continue to benefit.

What to Do With FUBO

I am definitely not the only one who thinks that FUBO stock is deeply undervalued. For example, Seeking Alpha has a survey of 8 Wall Street analysts whose average price target is $45.38 per share. That represents a potential gain of 120% over today’s price.

Similarly, TipRanks.com indicates that 7 analysts have an average price target of $45.43, or 120% higher. Marketbeat.com says the average of 8 analysts is $42.88.

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This is a pretty uniform consensus that FUBO stock is worth significantly more. In fact, my target price of $30.68, up almost 50%, looks pretty tame.

Expect to see the stock rise if fuboTV revises up its outlook for Q2 and the rest of the year on May 11 when it reports its Q1 numbers.

Another way to estimate the potential returns with FUBO stock is to use probability estimates. I have done this in a number of similar situations where the stock price is at an outlier price. For example, since Dec. 22, when it was at $62, the stock has fallen over $41 per share.

Expected Return Using Probability Estimates

Therefore, I suggest there is a much greater than even chance FUBO stock will rise 50% from here by the end of the year. Let’s say there is a 60% likelihood. In addition, let’s assume there is a 30% chance it falls another 20%, especially if Q1 results cast a further dampening effect on the stock.

However, I suspect that there is little chance of that, given that most of the bad news is already in the price. That leaves a 10% chance that FUBO stock muddles through, with just a 10% gain for the rest of the year.

This results in the following expected return (ER): Scenario 1: 60% x 50%, or an ER of +30%. Scenario 2: 30% x -20%, or -6.0%. Lastly, Scenario 3: 10% x 10%, or +1.0%. Therefore, the total ER is: +30% -6.0%+1.0% or +25%.

In other words, the average estimate is that FUBO stock will rise 25% between now and the end of the year, even if Q1 results on May 11 are disappointing.

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That is a great ROI for most investors.

On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.

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