Getting In Cheap On Madison Square Garden Sports Corp. (NYSE:MSGS) Is Unlikely

Simply Wall St
·3 min read

Madison Square Garden Sports Corp.'s (NYSE:MSGS) price-to-earnings (or "P/E") ratio of 78.2x might make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 15x and even P/E's below 8x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

With earnings growth that's inferior to most other companies of late, Madison Square Garden Sports has been relatively sluggish. It might be that many expect the uninspiring earnings performance to recover significantly, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Madison Square Garden Sports

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If you'd like to see what analysts are forecasting going forward, you should check out our free report on Madison Square Garden Sports.

Is There Enough Growth For Madison Square Garden Sports?

The only time you'd be truly comfortable seeing a P/E as steep as Madison Square Garden Sports' is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a worthy increase of 3.1%. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 13% each year as estimated by the six analysts watching the company. Meanwhile, the broader market is forecast to expand by 9.6% each year, which paints a poor picture.

In light of this, it's alarming that Madison Square Garden Sports' P/E sits above the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Madison Square Garden Sports currently trades on a much higher than expected P/E for a company whose earnings are forecast to decline. When we see a poor outlook with earnings heading backwards, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware Madison Square Garden Sports is showing 3 warning signs in our investment analysis, and 2 of those are a bit unpleasant.

If these risks are making you reconsider your opinion on Madison Square Garden Sports, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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