StockStory Flags Warner Music’s Growth and Returns as Weak Spots

StockStory said Warner Music Group’s sales growth and returns on invested capital are reasons for caution, despite a 12.6% share gain over six months. The publisher noted that the stock lagged the S&P 500, which returned 21.4% over the same period.

Warner Music’s sales grew at a 7.7% compound annual rate over the past five years, StockStory said, below its benchmark for the consumer discretionary sector. The publisher also cited analyst estimates that the company’s free-cash-flow margin will hold at 11.4% over the next year, matching the level for the past 12 months.

StockStory said the company’s return on invested capital declined by an average of 3.1 percentage points annually over the last few years. It argued that this trend, alongside what it described as low returns, points to limited opportunities for profitable growth.

The publisher said Warner Music traded at 16 times forward earnings when the article was published, and argued that the valuation already reflected substantial positive expectations. It also pointed readers to a company that owns Taco Bell, but did not name it in the article.

As of 17:23 UTC on Sept. 28, Warner Music shares were at $27.46, up 1.18% from the previous close.