If you are trying to figure out whether TKO Group Holdings is priced attractively right now, you will want to look past the headlines and into what the current share price implies about future expectations.
Over the last year the stock has returned 28.1%, although the shorter term picture is more mixed, with a 0.4% move over 7 days, an 8.7% decline over 30 days and an 8.6% decline year to date.
Recent coverage has focused on TKO Group Holdings as an entertainment and combat sports company formed through the combination of UFC and WWE. This has kept attention on how investors value its media rights, live events and intellectual property. This context is important when thinking about why the share price has been resilient over 12 months despite softer recent returns.
On Simply Wall St's 6 point valuation framework, TKO Group Holdings currently scores 2 out of 6. It passes some undervaluation checks but not all. The rest of this article will break down those methods and then finish with a more complete way to think about the company’s value.
TKO Group Holdings scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
Approach 1: TKO Group Holdings Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow, or DCF, model takes estimates of a company’s future cash flows and discounts them back to today, to arrive at an estimated value per share.
For TKO Group Holdings, Simply Wall St uses a 2 Stage Free Cash Flow to Equity model based on cash flow projections. The latest reported free cash flow is about $1.16b. Analyst and extrapolated forecasts point to projected free cash flow of around $2.22b in 2030, with intermediate years between 2026 and 2035 ranging roughly from $1.36b to $2.21b in nominal terms, all in $.
After discounting these projected cash flows back to today, the model arrives at an estimated intrinsic value of $146.00 per share. Compared with the current share price, this implies the stock is 29.6% overvalued on this DCF view.
Result: OVERVALUED
Our Discounted Cash Flow (DCF) analysis suggests TKO Group Holdings may be overvalued by 29.6%. Discover 61 high quality undervalued stocks or create your own screener to find better value opportunities.
Approach 2: TKO Group Holdings Price vs Earnings
For a profitable company, the P/E ratio is a useful way to see how much investors are paying for each dollar of earnings. It gives you a quick sense of how the market is weighing the business today relative to its current profit.
What counts as a "normal" P/E will usually reflect expectations for future earnings growth and the level of risk. Higher expected growth or lower perceived risk can support a higher P/E, while lower growth expectations or higher risk can point to a lower multiple being more reasonable.
TKO Group Holdings currently trades on a P/E of 75.49x. That sits slightly below its peer average of 77.54x, and well above the Entertainment industry average of 35.11x. Simply Wall St also calculates a Fair Ratio of 34.18x for TKO Group Holdings. This Fair Ratio is a proprietary estimate of what the P/E might be given the company’s earnings growth profile, industry, profit margin, market cap and risk factors.
Because the Fair Ratio directly incorporates growth, risks, profitability, industry and size, it can be more tailored than a simple comparison with peers or the broad industry. On this basis, TKO Group Holdings trades above its Fair Ratio, which points to the shares looking expensive on earnings.
Result: OVERVALUED
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Upgrade Your Decision Making: Choose your TKO Group Holdings Narrative
Earlier it was mentioned that there is an even better way to understand valuation. On Simply Wall St you can use Narratives on the Community page to set out your own story for TKO Group Holdings, link that story to explicit revenue, earnings and margin forecasts, convert those forecasts into a Fair Value, and then compare that Fair Value with the current price to help decide whether to act. The Narrative itself flexes in real time as new news or earnings arrive. For example, one investor on the platform currently builds a very optimistic TKO story around a Fair Value of about US$37,618 per share and very large expected revenue growth, while another takes a much more cautious stance with a Fair Value of about US$223, reflecting far more moderate expectations.
Do you think there's more to the story for TKO Group Holdings? Head over to our Community to see what others are saying!
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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