There is a common misconception that the music industry is dying. Though in-person concerts have been temporarily phased out due to the pandemic and most music can be accessed for free on YouTube, there is still money to be made in this space. WMG is hands-down one of the top music industry stocks.

WMG was a privately held company until going public in the summer of 2020. WMG debuted around $30 per share, jumped up to $32 then gradually slipped down to the mid-to-high $20s. WMG subsequently traded sideways until early November when it dipped only to bounce right back to life in the weeks to follow. Between December 4 and February 4, WMG has increased from $29.57 all the way to $38.34.

Is WMG a Buy at it current trading price slightly below $40? Let’s find out.

WMG’s Business

Headquartered in the Big Apple, WMG makes its money from music content. The company’s revenue primarily stems from the sale of music (both physical and digital) along with the sale of digital publishing licenses. WMG develops its own artists internally and also purchases rights to existing music catalogues. The majority of WMG’s operations are in the United States and the United Kingdom.

WMG’s quarterly revenue is up 6% on a year over year basis, hitting an impressive $1.34 billion. However, WMG’s adjusted earnings per share have declined from 24 cents to 19 cents per diluted share. The silver lining is the fact that WMG’s digital sales are up more than 15% on a quarterly basis. The company’s EBITDA is up nearly 20%, coming in just shy of $300 million. Though revenue from the physical sale of music and live concert performances is down, WMG’s digital publishing licenses and digital media are making up the difference.

WMG From the Analysts’ Perspective

Of the 15 analysts who have studied WMG, nine consider it a Hold, six consider it a Buy and one considers it a Strong Buy. The average analyst price target for the stock is $36.13. This is concerning as WMG trades for more than $38 per share.

If WMG slides down to the average analyst price target, it will have declined by around 5%. However, it is worth mentioning that the highest analyst price target for the stock is $42. The worst case scenario appears to be a reversion all the way down to the lowest analyst price target of $28.

WMG’s POWR Ratings

WMG has an overall POWR Rating of C, meaning it is neither a Buy nor a Sell. Rather, WMG is Neutral. The stock has an A grade in the Growth component along with C grades in the Sentiment and Stability components. If you would like to learn more about WMG’s POWR Ratings performance such as its grades in the Value, Momentum and Quality components, click here.

Of the nine publicly traded companies in the Entertainment – Movies/Studios category, WMG is ranked second. You can find out more about WMG’s industry as a whole by clicking here.

Does WMG Belong in Your Portfolio?

Possibly. The music industry is clearly alive and well in spite of the pandemic. Though people can easily listen to no-cost music on YouTube, doing so subjects the consumer to annoying ads. Furthermore, most people dislike the idea of resorting to YouTube every single time they want to listen to music. The pressing question is whether WMG will be able to pivot as this dynamic industry continues to take shape in the digital era. Only time will tell.

Those considering establishing a position in WMG might be better off waiting until the stock moves back to the low $30s. It is concerning that WMG has a lofty forward P/E ratio of 56.99. This is an elevated forward P/E ratio, especially considering the fact that WMG is not a high-flying tech stock.

Hold off on establishing a position in WMG until the stock declines, continue to monitor the WMG newswire for updates and reassess the stock after its next pullback.