Live Nation: Too Expensive

Summary

• One of the highest priced stocks I've come across recently is Live Nation.
• With a P/E of over 2350, its earnings yield is 257 basis points below the U.S. 10 year bond rate.
• Yes, there are industry tailwinds, with the U.S concert market alone expected to grow to $24.55b by 2021.
• Yet, with its dilutive history and expensive price, I don't believe Live Nation investors are in the best position to benefit from those tailwinds.
• Putting its fundamentals into context, Madison Square Garden makes 1/6th of its revenue and 9/10ths of its profit (and trades at 1/33rd of its price-to-earnings).

One of the highest priced stocks I've come across recently is Live Nation Entertainment (NYSE: NYSE:LYV). It first caught my attention due to its massive P/E of 2351. I can understand why investors are optimistic. Yet as I outline below, the research suggests that high P/E stocks are not correlated with future earnings growth, but instead tend to experience future price declines. And when we combine LYV's high P/E with its poor track record of earnings growth and its history of dilution - in my opinion - it makes this company not worth the risk.

Tailwinds

Investors have reason to be optimistic: there are a lot of tailwinds facing the industry. As we know, for example, the U.S. concert market alone is expected to grow to $24.55b by 2021, with sporting events expected to grow to just over $62.3b.

As LYV's Michael Rapino says in a recent conference:

Our concerts business is our flywheel, attracting over 30 million fans to shows globally in the quarter, which then drove record results in our onsite ticketing and advertising business. Through October, we have sold 80 million tickets for concerts in 2017, up 20% year-on-year. With our strength in concert attendance growth, we are also seeing similar success in onsite sponsorship, ticketing businesses giving confidence that 2017 will be another year of record results for Live Nation overall and for each of its divisions.

[...]

With this, we expect to deliver record results in our concerts business this year. This growth in concert demonstrates the power of Live across the globe, as more fans are attending live shows and making it a top entertainment choice and the only non-duplicatable music option. In our high-margin sponsorship business, we have continued double-digit growth this year with revenue up 20% and AOI up 15% year-to-date, as we delivered our best quarterly results ever for

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.