Since July 2021, the S&P 500 has delivered a total return of 71%. But one standout stock has nearly doubled the market - over the past five years, Live Nation has surged 126% to $180.98 per share. Its momentum hasn’t stopped as it’s also gained 29.5% in the last six months thanks to its solid quarterly results, beating the S&P by 21.1%.
Is now the time to buy Live Nation, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Live Nation Will Underperform?
We’re glad investors have benefited from the price increase, but we’re cautious about Live Nation. Here are three reasons we avoid LYV, plus one stock we’d rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or trend. Live Nation’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 4.6% over the last two years was well below its five-year trend. Note that COVID hurt Live Nation’s business in 2020 and part of 2021, and it bounced back in a big way thereafter. 
2. Weak Operating Margin Could Cause Trouble
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses — everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
Live Nation’s operating margin has shrunk over the last 12 months and averaged 3.6% over the last two years. Although this result isn’t good, the company’s elite historical revenue growth suggests it ramped up investments to capture market share. We’ll keep a close eye to see if this strategy pays off.
3. Cash Flow Margin Set to Decline
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Over the next year, analysts predict Live Nation’s cash conversion will slightly fall. Their consensus estimates imply its free cash flow margin of 6.5% for the last 12 months will decrease to 5%.
Final Judgment
Live Nation doesn’t pass our quality test. With its shares topping the market in recent months, the stock trades at 135.7× forward P/E (or $180.98 per share). This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere. We’d recommend looking at one of our all-time favorite software stocks.
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