FOX CORP - CLASS A (NASDAQ:FOXA): A Strong Value Investment with Undervaluation and Solid Fundamentals

Value investing, developed by Benjamin Graham and later improved by Warren Buffett and Charlie Munger, focuses on finding stocks priced below their true worth. This method highlights financial stability, earnings potential, and steady growth while requiring a safety buffer to reduce risks. A structured way to use this strategy is through fundamental screening tools, like ChartMill’s "Decent Value" screen, which selects stocks with solid valuation scores (7 or higher) and good profitability, financial health, and growth.

Fox Corp - Class A (NASDAQ:FOXA) stands out as a potential match for these standards. The company, a leading name in television production and broadcasting, works across cable networks, broadcast TV, and digital platforms. Its fundamental analysis report hints it might be undervalued while maintaining strong financials, a mix that fits well with value investing ideas.

Valuation: A Core Element for Value Investors

The heart of value investing is discovering stocks priced below their true value. FOXA’s valuation metrics suggest it could be undervalued:

• Price/Earnings (P/E) Ratio: At 12.85, FOXA is priced lower than 71% of its media industry competitors and well below the S&P 500 average of 28.05.
• Price/Forward Earnings: A ratio of 13.12 indicates the stock is fairly priced compared to future earnings projections.
• Enterprise Value/EBITDA & Price/FCF: FOXA is more affordable than 65% and 79% of industry rivals, respectively, on these measures.

These numbers imply FOXA’s market price might not fully capture its earnings potential, a sign of undervaluation. For value investors, such gaps between price and true value present chances—if the company’s fundamentals are strong.

Financial Health: Stability in Challenging Times

A company’s resilience during economic shifts is vital for long-term value investors. FOXA earns an 8/10 for financial health, with notable strengths:

• Liquidity: A current ratio of 2.45 and quick ratio of 2.33 show strong short-term financial health, better than 80% of peers.
• Debt Management: A debt-to-equity ratio of 0.57 is reasonable, and its debt-to-free-cash-flow ratio (3.02) means it could clear debts in just over three years using FCF alone.
• Altman-Z Score: At 2.92, the risk of bankruptcy is low but not zero.

Healthy liquidity and balanced debt lower the chance of financial trouble, letting value investors concentrate on long-term gains rather than short-term risks.

Profitability: Reliable Earnings Strength

Value investors favor companies with consistent profitability, as earnings determine true value. FOXA scores 8/10 here, with impressive metrics:

• Return on Equity (ROE): At 16.18%, FOXA beats 86% of industry peers, showing efficient use of capital.
• Operating Margin: 19.03% places it in the top 12% of the sector, indicating strong operational performance.
• Stable Cash Flows: Positive earnings and operating cash flows over the past five years highlight reliability.

While margins have dipped slightly recently, FOXA’s profitability stays above industry norms, reinforcing its appeal as a value choice.

Growth: A Complementary Factor

Though value investing doesn’t chase rapid growth, steady progress strengthens the case for undervaluation. FOXA’s growth rating (5/10) is modest but supportive:

• Past EPS Growth: Up 29.7% YoY, with an 8.2% 5-year CAGR.
• Revenue Growth: 15.7% YoY, though the 5-year average is a slower 4.2%.
• Future EPS Growth: Projected at 10.4% yearly, ahead of revenue estimates (3.1%).

While not dramatic, this growth suggests FOXA isn’t stagnant—a key factor when judging whether undervaluation is short-term or lasting.

Conclusion: A Value Pick Worth Examining

FOXA’s mix of low valuation multiples, solid profitability, and financial strength matches Graham’s ideas of safety margins and true value. Its steady growth also lessens the risk of a "value trap," where cheap stocks stay cheap due to weak fundamentals.

For investors looking for similar opportunities, ChartMill’s Decent Value Stocks Screen provides a filtered list of stocks meeting these standards.

Disclaimer: This analysis is not investment advice. Do your own research or consult a financial advisor before making investment decisions.