Corus Entertainment (TSX:CJR.B) has struggled for much of the year, but there are signs that the stock is stabilizing and may have finally found a bottom. Year to date, the stock is down more than 60%, but in the last month it has declined by less than 3%. Although the share price has briefly dipped below $4, it has found some support at that price point, and it may finally be able to build some momentum.
There are three reasons I believe the stock is due for a turnaround.
Its next quarter can’t be any worse than its last one was
Corus has done a good job of consistently posting a profit, but that was not what happened in Q3 when the company incurred a big loss of nearly $1 billion after a significant write-down wiped out its profits for the quarter. It’s unlikely we’ll see the unusual item reappear next quarter, and although investors know that and would have accounted for that, when a stock is down, it’s easy to ignore the positives.
If Corus can put together some savings or find a way to grow its top line, it could be the surprise the stock needs to turn this bearish trend around and be the start of a much-needed rally. Either way, the worst-case scenario is an improvement from Q3, and it’s hard to see that hurting the stock.
The stock is trading at an all-time low and it’s hard to see it falling any further
A stock can always continue to drop, and it’s unwise to assume otherwise. However, given that the stock already trades well below book value, at around half of its stated value, there’s not enough risk here to justify a further decline in share price. However, if that does happen, then the stock just becomes an even better buy.
Corus has strong fundamentals, and while it may be coming off a poor quarter, the company has still generated positive free cash flow in each of its last five quarters. There are no imminent concerns about the company’s long-term viability; it isn’t dependent on a volatile commodity price and it isn’t burning through cash. There simply is no reason for the sell-off to continue, and sooner or later value investors will start to take notice of this bargain.
Corus still has many opportunities for growth
The company has a lot of solid content, and what it chooses to do with it ultimately remains up to Corus. The day will come when it decides to put together a package online that will appeal to advertisers and consumers alike, where people will be able to watch content without a cable subscription. Once that happens, we could see the bulls return and the stock price start to take off.
However, despite what the stock price might suggest, it isn’t all doom and gloom for Corus. I’m not convinced that advertisers won’t come back, especially as consumers start to turn away from online streaming services, as they become more and more diluted as more content producers start offering their own streaming services.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor David Jagielski owns shares of CORUS ENTERTAINMENT INC., CL.B, NV.