WWE Stock Struggling to Justify Lofty Valuation

Year-to-date, WWE is up 16%

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World Wrestling Entertainment, Inc. (NYSE:WWE) yesterday announced the release of it first original series, "WWE Evil," in partnership with Comcast's (CMCSA) Peacock TV. The  8-part docu-series will be available on the streaming platform on Thursday, March 24. At last check, WWE is up 0.3% to trade at $57.24.

The equity has been extremely volatile over the past 12 months, but a familiar floor at the $56 level has been supporting the shares in recent weeks. Meanwhile, the 30-day moving average has been guiding World Wresting Entertainment stock higher since early February. Year-to-date, WWE is up 16%.

WWE 30 Day

Short sellers have been piling on the security of late. Specifically, short interest rose 10.5% in the last two reporting periods, and the the 7.07 million shares sold short now make up 16.4% of the stock's available float, or more than two weeks' worth of pent-up buying power.

At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), WWE has a 50-day put/call volume ratio of 0.89 that sits higher than 94% of readings from the past year. So, while calls outnumbered puts on an overall basis, the latter have been picked up at a much quicker-than-usual clip in the last 10 weeks.

The company has generated fairly consistent revenue and net income growth over the last few years, and is expected to continue doing so this year. Estimates say revenues will increase by 7.6%, with earnings expected to rise 10.2% in 2022. In addition, World Wrestling Entertainment's annual revenues and net income have increased 12.4% and 36.9%, respectively, since 2020.

Nonetheless, WWE’s top-line growth rate has been much slower long-term, with just 17.7% revenue growth since 2018. This makes its price-sales ratio of 4.55 extremely rich. World Wrestling Entertainment stock also trades at an inflated price-earnings ratio of 27.64, with its forward price-earnings ratio of 25.13 indicating investors should not expect improvement as far as valuation goes. Overall, WWE’s valuation is too high, considering the company’s relatively slow growth rate.

 

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