Shares of The New York Times(NYSE: NYT) slipped by as much as 10% this week, according to data from S&P Global Market Intelligence. The largest newspaper company in the United States posted strong subscriber and earnings growth in the fourth quarter of 2023. It is also raising its dividend per share. However, these results were below investor expectations, which led the stock to fall in the days following the report.
Let's take a look at why The New York Times stock is falling and whether it is a buy-the-dip candidate at these levels.
Growing subscribers, high expectations
Even though the newspaper business has struggled over the last two decades, The New York Times has thrived. Whether due to strong execution or consolidation to more national news consumption due to the growth of the internet, the company has put up steady growth in recent years. In Q4, the company added 300,000 new digital subscribers, hitting 10.3 million total subscribers across its various subscription tiers.
Increasing subscribers over its fixed cost base has led to expanding profit margins, with operating margin up to 19% in the fourth quarter compared to 13% a year ago. The company also raised its dividend per share from $0.11 to $0.13 each quarter.
This report looked solid, so why was the stock down? Well, it looks like the expectations for The New York Times stock were quite high heading into the earnings report. It had a stock price close to $50 before dropping its earnings. In 2023, its earnings per share (EPS) was $1.41, giving it a price-to-earnings ratio (P/E) of 35.7. These imply high expectations for future growth, which The New York Times must not have lived up to. This is why the stock dipped this week.
Should you buy the dip?
After the stock price fall, The New York Times now trades at $44. This gives the stock a P/E of 31. Does this mean you should buy the dip at a 10% discount?
I don't think so. The company is not growing very quickly and still trades at a P/E above the market average. Despite its success in consolidating the newspaper industry, it is going to be tough for the company to get 10 million more digital subscribers over the next decade. With shares at a P/E above 30, I think there are better options for investors out there at the moment.
Should you invest $1,000 in New York Times right now?
Before you buy stock in New York Times, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and New York Times wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of February 6, 2024
Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends New York Times. The Motley Fool recommends the following options: short April 2024 $50 calls on New York Times. The Motley Fool has a disclosure policy.
