FuboTV (NYSE:FUBO) is down over 50% from its peak at $33.76 on Nov. 2 to just $15.52 as of mid-day Dec. 20. That is actually a drop of 54% for FUBO stock in the space of just over 1 month.
This is a pretty hefty fall, and might normally lead one to think there is some sort of issue. However, value investors don’t really care about the stock declines when they see value left in the price. That is the case here.
As I wrote in my last article on FUBO stock, fuboTV is growing very quickly and now the stock looks like quite a bargain. At the time, on Nov. 24, the price was $21, and I was very keen on the stock then. But now, at $16.83, it looks even more like a bargain, after falling another 26% since then.
Where Things Stand With fuboTV
On Nov. 9, the company reported it now has 1 million subscribers. Interestingly, on the same day with its third-quarter results, fuboTV reported that subscription is now 88.1% of its total revenue of $156.7 million, with advertising starting to rise substantially.
For example, its advertising revenue grew 147% year-over-year to $18.6 million, while subscription revenue grew even faster. It was up 158% YoY to $138.1 million in the quarter ending Sept. 30.
Moreover, nine analysts surveyed by Seeking Alpha now forecast that revenue will jump 184% from $217.7 million to $618.77 million by the end of 2021. But that is the past, for all intents and purposes, and doesn’t matter for the stock going forward.
These same analysts now estimate that revenue will top $1 billion (i.e., $1.06 billion) by the end of 2022. That represents a very respectable 71% growth rate over 2021. Although not as fast as the 2021 rate this is still a very high rate.
But that is not it. According to Seeking Alpha, revenue should reach $1.55 billion by the end of 2023, or two years in the future. That essentially means sales will well more than double over the next two years (i.e.,$ 1.55b/$618.77m, or up 150%. In fact, this implies that that the average compound annual growth rate will be 58.3% each of the next 2 years.
Where This Leaves fuboTV’s Value
This kind of growth, whether primarily from subscriptions or from a higher percentage of ad revenue, cannot be ignored by the market. fuboTV now has a market capitalization of $2.5 billion, down substantially from a much higher valuation.
Therefore, given its potential 2023 revenue of $1.5 billion, it is now just 1.6 times 2023 sales. To put it simply, that price-to-sales (P/S) multiple is just too cheap. Even if we discount the future revenue for the time value of money, it’s still too cheap.
For example, using a 10% discount rate over 2 years, the discount factor is 82.64%. Therefore, the 2023 revenue, discounted to the present, works out to $1.281 billion. That raises the P/S multiple to 1.95 times, or almost 2 times.
Let’s compare that with some other streaming stocks. Netflix (NASDAQ:NFLX) trades at a7.6 times P/S multiple for 2022 revenue, based on Seeking Alpha’s survey of 43 analysts. Analysts forecast $39 billion for 2023 revenue and Netflix has a $259.89 billion market value. As a result, NFLX’s 2023 P/S multiple is 6.66 times.
If we use the same 10% discount rate, the P/S multiple for NFLX would actually be higher. So to compare FuboTV’s 2 times multiple with Netflix’s 6.66 times multiple implies that it is very undervalued.
For example, even if we discount the NFLX multiple by 50% since it is profitable and very much larger than fuboTV, the metric would be 3.33 times.
That would still imply a 71% potential upside for FuboTV stock (i.e., 3.33x / 1.95x = 1.71). This puts FUBO stock on a price target of $26.54 per share (i..e, 15.52 x 1.71).
Where This Leaves FUBO Stock
Analysts are also extremely positive about the stock, despite the recent downturn. For example, TipRanks indicates that there are nine analysts who’ve written on the stock in the last 3 months. Their average 12-month price target is $43.71. That implies a potential upside of 178% from today’s price.
Similarly, Seeking Alpha has a survey of 10 Wall Street analysts. Their average 12-month price target is $43.50, not that far from the TipRanks average of $43.71.
Note these are all well over my price target of $26.54, based on 3.33 times 2023 revenue targets. That is pretty rare, as I am almost always higher than most Wall Street analysts. This should give value investors some comfort that FUBO stock appears to be way too cheap.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.