Shareholders of E.W. Scripps would probably like to forget the past six months even happened. The stock dropped 22.5% and now trades at $2.14. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.

Is there a buying opportunity in E.W. Scripps, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Despite the more favorable entry price, we don't have much confidence in E.W. Scripps. Here are three reasons why SSP doesn't excite us and a stock we'd rather own.

Why Do We Think E.W. Scripps Will Underperform?

Founded as a chain of daily newspapers, E.W. Scripps (NASDAQ:SSP) is a diversified media enterprise operating a range of local television stations, national networks, and digital media platforms.

1. Long-Term Revenue Growth Disappoints

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last five years, E.W. Scripps grew its sales at a 12.9% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.

2. Cash Flow Margin Set to Decline

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Over the next year, analysts predict E.W. Scripps’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 12% for the last 12 months will decrease to 1.6%.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, E.W. Scripps’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

E.W. Scripps doesn’t pass our quality test. Following the recent decline, the stock trades at 0.6× forward EV-to-EBITDA (or $2.14 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better stocks to buy right now. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.

Stocks We Like More Than E.W. Scripps

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