ViacomCBS Inc. (NASDAQ: VIAC) has had a rough go in the market as of late. In late-March, the stock plummeted after the company said it would be selling about $3 billion worth of its common stock in an attempt to raise funds to enter into the streaming industry.
Unfortunately, that didn’t go over well with investors who sent the stock on freefall, losing more than 55% in one week. Since the fall settled and stabilized, the stock has maintained a downward trend, but I’m here to tell you, that’s not going to last forever.
No matter how you slice it, ViacomCBS is heavily undervalued.
Why ViacomCBS Raised Funds
As mentioned above, when raising the funds, ViacomCBS said that it would be using the funding to increase its strength in the streaming entertainment industry. This makes sense considering the company’s recent launch of Paramount+ and 2019 acquisition of Pluto TV.
It also makes sense from a strategic standpoint. Consumers have been cutting the cord for some time, and streaming entertainment has become the norm. Sure, ViacomCBS can tap into this audience by offering their content through Hulu and other streaming content partners, but there’s more profitability in doing things for yourself.
On the other hand, breaking into the streaming game, and doing so with a competitive offering is going to cost quite a bit of money. Several competitors are already well ahead of the curve in terms of content, and as a late-bloomer, ViacomCBS will have to play catchup, purchasing content quickly to attract the masses.
So, raising funds through a dilutive offering of VIAC common stock was somewhat necessary.
Undervalued Is An Understatement
To say that ViacomCBS is an undervalued stock is like saying Royal Caribbean’s Symphony of the Seas is a big boat; of course it is, it’s the biggest cruise ship in the world!
Dilution tends to scare investors, who often overreact to the news, and that’s clearly what’s taken place here. When we talk about ViacomCBS, we’re talking about a company with an impeccable balance sheet. In fact, the company’s book value per share sits at more than $26. So, given the current price of the stock, it’s trading with a price to book value ratio of about 1.4. That’s unheard of among large cap stocks that pay strong dividends.
Look at price to earnings, price to sales, PEG ratio, no matter what you look at, you’re going to come to the same conclusion. VIAC stock is severely undervalued.
A Short Squeeze May Come Into Play
Recently, short interest on VIAC stock has been climbing. In fact, at the moment, short interest sits at about 13%. While that’s not the 20% I usually look for when it comes to short squeeze opportunities, I’m not normally looking in the large cap space for them either.
The fact of the matter is that on a stock like ViacomCBS, 13% short interest is incredibly high. Considering the heavy short interest on the stock, there’s a good chance that we’ll see a short squeeze play out in the near future.
At the same time, Wall Street Bets Redditors, the same group that led to the Big Short Squeeze in GameStop, among other big names, is already latching onto the opportunity with several members posting about the stock throughout the sub-Reddit’s various boards.
If the traction continues on Wall Street Bets, we could soon see a concerted effort to squeeze the shorts out of their positions, sending ViacomCBS stock to new heights.
The Bottom Line
The bottom line here is that ViacomCBS stock is an opportunity no matter how you slice it. In the short term view, there’s the potential for a short squeeze, providing significant gains, potentially the likes of what we saw with GameStop.
From a long-term perspective, the opportunity is even more exciting. The company has a strong balance sheet and isn’t going anywhere any time soon. Moreover, recent concerns with regard to dilution have created a clear undervaluation that would be attractive to any value investor. All told, there’s a huge opportunity here no matter how you slice it.