It hasn't been a great afternoon session for Spotify Technology investors, who have watched their shares sink by -2.6% to a price of $369.2. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
Spotify Technology's Valuation Is in Line With Its Sector Averages:
Spotify Technology S.A., together with its subsidiaries, provides audio streaming subscription services worldwide. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.6 and an average price to book (P/B) ratio of 3.19. In contrast, Spotify Technology has a trailing 12 month P/E ratio of 144.8 and a P/B ratio of 17.41.
When we divideSpotify Technology's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.52, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
Generally Positive Cash Flows but a Declining EPS Growth Trend:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $5,259 | $6,764 | $7,880 | $9,668 | $11,727 | $13,247 |
| Gross Margins | 26% | 25% | 26% | 27% | 25% | 26% |
| Net Margins | -1% | -3% | -7% | 0% | -4% | -4% |
| Net Income (M) | -$78 | -$186 | -$581 | -$34 | -$430 | -$532 |
| Net Interest Expense (M) | -$130 | -$58 | -$416 | $155 | $289 | -$59 |
| Diluted Shares (M) | 181 | 184 | 190 | 192 | 193 | 197 |
| Earnings Per Share | -$0.51 | -$1.03 | -$3.1 | -$1.03 | -$2.93 | -$2.73 |
| EPS Growth | n/a | -101.96% | -200.97% | 66.77% | -184.47% | 6.83% |
| Avg. Price | $161.03 | $138.23 | $214.1 | $262.3 | $140.21 | $369.2 |
| P/E Ratio | -365.98 | -134.2 | -69.06 | -1457.22 | -62.87 | -135.24 |
| Free Cash Flow (M) | $344 | $573 | $259 | $361 | $46 | $680 |
| Current Ratio | 1.05 | 0.91 | 0.82 | 1.36 | 1.24 | 1.29 |
