Warner Bros. Discovery (NASDAQ:WBD), formed two weeks ago from the merger of WarnerMedia. The spin-off from AT&T’s (NYSE:T) Discovery, Inc. is tanking. It first started trading around $25 per share, but it closed on Apr. 29 at $18.15. To put it bluntly, as traders on Wall Street do, investors are puking their position. They received the WBD stock in a spinoff and don’t want it.
It also doesn’t help that not only did Netflix (NASDAQ:NFLX) have a disastrous first quarter (Q1), but the economy is weakening. Netflix reported on Apr. 20 that it lost 200,000 net streaming customers. This was after forecasts of a gain of 2.5 million to 4 million for Q1. For Q2, it now forecasts a net loss of 2 million paid memberships versus gaining 1.5 million a year ago. Moreover, the U.S. reported that GDP fell 1.4% in Q1. The definition of a recession is “two consecutive quarters” of negative growth. So, assuming Q2 shows lower growth, we are likely now in the middle of a recession.
That implies that streaming revenue at Discovery and HBO could slow down. This is because people inherently cut back on their extra expenses during recessions. Entertainment and streaming are clearly a budget cut area for many households. This is one very good reason why WBD stock is falling. It also doesn’t help that AT&T shareholders may be selling their newly received WBD shares. They may be doing this in order to buy more T stock to increase their dividend income.
Where This Leaves WBD Stock
Interestingly, this actually makes the stock a bargain now. Sometimes the best time to buy, as contrarians will tell you, is when everyone is selling. For example, nine analysts surveyed by Refinitiv forecast that the company will make $1.61 in earnings per share in 2023. This year is filled with extra expenses related to the merger.
Therefore, this means that WBD stock has fallen to the point where it is likely a good bargain. Its forward price-to-earnings multiple is just 8.01 times. Moreover, the average price target of 19 analysts covering the stock is $35.74 per share. That is almost twice as high as its present price.
In other words, WBD stock has been oversold. Bargain and value investors should start looking at acquiring a position here. If it falls further, they should look to average cost into the position. Over the long-term, given that the company is forecast to make good profits, this could pay off, as contrarian investments tend to do.
On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions 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.