In other words, if you own a share of Green Bay, and want to sell it for $250, you can’t. The company will swoop in and force you to sell said share for two-and-a-half cents instead — turning a potential 10,000-fold profit into a 99.99% loss. Which kind of defeats the purpose of selling the shares.
Why Manchester United is 10,000 times better than Green Bay
Now compare this with the situation Manchester United shareholders enjoy. Green Bay shareholders own a piece of a technically for-profit corporation that actually earns no profit. Man Utd, on the other hand, is unabashedly profit-seeking — and profitable. Green Bay shareholders can’t make a profit for themselves by selling their shares — but Man Utd shareholders most assuredly can.
Last year, Manchester United PLC (NYSE:MANU) reported GAAP earnings of $37 million and generated $93 million in free cash flow. Its stock sells for about 51 times the earnings it’s expected to make this year.
Put in perspective, that’s more expensive than a share of sportswear maker Under Armour Inc (NYSE:UA), and twice the P/E of NIKE, Inc. (NYSE:NKE). But that’s OK. Because according to analyst estimates, Man Utd is likely to grow its profits at the astounding speed of 45% per year over the next four years — twice as fast as Under Armour Inc (NYSE:UA), and four times the speed of NIKE, Inc. (NYSE:NKE). If all goes as planned, today’s Man Utd share price of $17 and change will be only 26 times the earnings the club makes next year, and only 22 times 2015 earnings.
When it comes to sports, the Green Bay Packers and Manchester United are both storied franchises, and deserving of their fans’ loyalty.
But in contrast to the Green Bay Packers, Manchester United PLC (NYSE:MANU) is more than just a great football team. It’s also a darned good-looking investment. Man Utd sells for a steep P/E, but a much lower price-to-free cash flow ratio. It’s growing fast enough to make its P/E ratio look reasonable, and its P/FCF ratio, cheap.
To my mind, there’s simply no room for doubt: When it comes to their potential for profit, this makes Manchester United a 10,000-times better investment than the Green Bay Packers.
The article Manchester United: 10,000 Times Better Than the Green Bay Packers originally appeared on Fool.com and is written by Rich Smith.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Nike and Under Armour.
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