One small-cap TSX stock that is flying under the radar is Stingray Group (TSX:RAY.A), a premium provider of curated direct-to-consumer and B2B (business-to-business) services, including audio television channels, radio stations, 4K UHD television channels, karaoke products, in-store music, and music applications.
Stingray owns and operates more than 100 radio stations, subscription video-on-demand content, and in-car and onboard infotainment content. The Stingray Business segment offers commercial solutions, while Stingray Advertising is the largest retail audio advertising network in North America, delivering digital audio messaging to over 20,000 retail locations.
Valued at a market cap of $505 million, Stingray has returned less than 40% in dividend-adjusted gains since March 2014. In this period, the TSX index has returned over 90% to shareholders. However, the underperformance has meant investors can consider buying shares of a company trading at a reasonable valuation, which offers a tasty dividend yield of 4.1%.
How did Stingray perform in fiscal Q3 of 2024?
In the fiscal third quarter (Q3) of 2024 (ended in December), Stingray increased revenue by 12.4% year over year to $100.3 million, while adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) rose 12.2% to $38.6 million, indicating a margin of 38%.
Its adjusted net income stood at $18.5 million, or $0.27 per share, up from $16.5 million, or $0.24 per share, in the year-ago period. Stingray reported adjusted cash flow of $32.7 million, or $0.47 per share, an increase of 80.6% compared to free cash flow of $18.1 million, or $0.26 per share, in the same period last year.
The company pays shareholders a quarterly dividend of $0.075 per share, indicating a payout ratio of less than 20%, providing it with enough room to improve its balance sheet, target accretive acquisitions, and invest in growth projects.
In Q3, Stingray allocated $1.9 million toward capital expenditures and reduced balance sheet debt, ending the quarter with a net-debt-to-adjusted-EBITDA ratio of 2.99 times, lower than 3.34 times last year.
Stingray continues to expand its portfolio of products and services. In January 2024, it launched five video channels on Xiaomi TV+, a free ad-supported TV streaming service platform. The offering is available on all Android TVs in several European countries. Earlier this year, the company announced Stingray Karaoke will be featured as an in-car entertainment service in a vehicle manufactured by Sony Honda Mobility.
Further, Stingray inked a deal with Byd, the largest electric vehicle manufacturer in the world. In this partnership, Byd will integrate Stingray Karaoke and include the Calm Radio app in its models across multiple countries.
Is Stingray stock undervalued?
Analysts tracking Stingray stock expect its sales to rise from $324 million in fiscal 2023 to $375 million in fiscal 2025. Its adjusted earnings per share is forecast to expand from $0.79 in 2023 to $1.04 in 2025.
So, priced at less than two times forward sales and seven times forward earnings, the TSX stock is really cheap, given its dividend yield and growth estimates.
Analysts remain bullish and expect Stingray stock to surge over 25% in the next 12 months. After adjusting for dividends, total returns may be closer to 30%.
