Like a phoenix rising from the ashes, one of my favourite FTSE 250 companies, Future (LSE:FUTR) soared by a staggering 35% in the last fortnight. Needless to say, the turnaround has surprised many, as the share price has been on a steady decline since 2021.
So what could have possibly caused this meteoric move?
The turnaround
To understand, we must first look at the company itself. Future is a media conglomerate that publishes content for games, entertainment, technology, sports, and more. The content spans websites, email newsletters, videos, social platforms, magazines, and events.
As the pandemic changed the world, many wondered if traditional media would ever be the same again. This ongoing uncertainty sent the share price down heavily, with little to no recovery over the years.
However, the last few weeks have given patient investors cause for excitement. With so much negativity in the previous years, a single piece of good news can send share prices soaring. As ITV’s Sharjeel Suleman was announced as the new CFO, investors saw a potential springboard for growth in the advertising space.
Despite the volatile share price in recent years, the company has not been afraid to make big moves. The business has expanded its reach by acquiring several well-known brands in new markets.
Improvements in the UK economy have also contributed. Early economic data indicated that the country is no longer in recession, and that the battle against inflation may be over.
Financial performance
Turning attention back to the company, one of the most significant drivers of the recent surge could be its impressive financial performance. According to the previous earnings report, earnings have been growing at an astonishing rate of 46.4% per year.
Revenues have also been on the rise, with a 33.8% annual growth rate. These numbers paint a picture of a company that is not only growing but doing so profitably.
To me, the business has seemed to be undervalued for some time. A discounted cash flow calculation suggests the share price may be as much as 71% undervalued. Clearly, this has increased as the share price collapsed, but for long-term investors, this could be even more exciting an opportunity.
The media landscape has been uncertain for some time as consumer trends and demands have evolved. But, by looking at the competition, I still think there is a lot of value here. At a price-to-earnings (P/E) ratio of only 7.8 times, the sector average of 12.4 times makes this look like an appealing investment.
The risks
As a long-term investor in the company, I’ve been here before. Exciting news leads to a temporary rally, but then the usual decline returns. The company’s earnings are forecast to decline at 1.4% per year, and the annual revenue growth rate is expected to be 2.4% per year. Not encouraging, but I still think there is a lot of potential here.
What’s next?
The recent surge can be attributed to a combination of factors, but essentially boils down to investors sensing the light at the end of the tunnel. While there are some concerns about future growth prospects, I still think this FTSE 250 company could be a winner over the coming decades. I’ll be buying more at the next opportunity.
