Friday, 22 June 2012

Investor's Checklist: Media

Look for media companies that consistently generate strong free cash flow.  We like to see free cash flow margins around 10 percent.

Seek out companies that have high market share in their primary markets - monopolies are often great for profits.  Licenses, especially in broadcasting, also serve to reduce competition and keep profit margins high.

Seek out companies with a history of well-executed acquisitions that have been followed by higher margins.

A strong balance sheet enables media companies to make selective acquisitions without increasing the risk for shareholders or diluting the shareholders' ownership stake.

Look for candid management teams, a history of sensible acquisitions, and either conservative reinvestment of shareholders' capital or the return of capital to shareholders through dividends and stock repurchases.

Don't chase hits.  Buying a stock because there's a lot of buzz about a hit movie or TV show rarely pays off.

Ref:  The Five Rules for Successful Stock Investing by Pat Dorsey

Read also:
Investor's Checklist: A Guided Tour of the Market...

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