AMC Networks Inc (AMCX)’s Killer Content Comes at Too High a Price

Let’s talk numbers
Assuming management realizes moving The Walking Dead to IFC is the worst idea ever, the company should continue to do well through at least the next couple of years. Mad Men, which the company co-owns with Lions Gate Entertainment Corp. (USA) (NYSE:LGF), is sailing into its second-to-last season. The final season should be a ratings champion. Breaking Bad is likely to sizzle as well, with its fifth and final season airing in mid-July of this year.

Unfortunately, with all of these fancy properties comes a fancy price: AMC trades at 28 times trailing earnings and nearly 19 times forward one-year earnings. Now, that’s not as rich as streaming champ Netflix, which trades at an absurd 70 times forward earnings, but it’s a sharp premium to traditional cable networks. Premium content provider Starz (NASDAQ:STRZA), though ad-revenue free, generates plenty of cash and just signed a huge deal with Sony Corporation (ADR) (NYSE:SNE) for top-tier content. Starz trades at just 11 times forward earnings.

For AMC to justify its price, The Walking Dead will have to keep shattering records for the rest of its life (which would have to be several more seasons) and keep convincing advertisers to shell out more cash. In addition, the programming director will have to come up with more shows to follow that are just as disruptive as the ones mentioned here. I’m not saying that cannot be done, but it’s a serious “if” for investors looking to take a position at this point in time.

Though AMC is well run and has done a fantastic job in recent years, it is too rich for my taste. Investors may be better off looking at some cheaper peers.

The article AMC’s Killer Content Comes at Too High a Price originally appeared on Fool.com and is written by Michael B. Lewis.

Fool contributor Michael B. Lewis has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix.

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