On May 22, shares of iHeartMedia stock dipped below $1 in value, dropping to a fresh low of 86 cents per share on May 28. It concluded a brutal month for the audio content creation and distribution company on the Nasdaq GlobalSelect market, dropping from $2.36 on May 6.
While iHeart stock has a long way to go to recoup that 22-day decline, “IHRT” is on a hot streak and is quickly regaining value.
As of Monday’s Closing Bell, iHeartMedia shares were priced at $1.4550, up 8.6% from Friday’s closing price.
That’s more than a 67% gain from two months ago, and erases all concerns that the company would receive a delisting notice from Nasdaq for its failure to maintain its minimum $1 trading value.
In fact, the last time “IHRT” was trading at its current pricing was on May 9.
With Q2 2024 earnings due the week of August 5, all looks peachy for the team overseen by Chief Operations Officer and Chief Financial Officer Rich Bressler. But is financial blog Simply Wall St. throwing a rotten apple at iHeartMedia?
Over the weekend, the blog offered a critical assessment of “IHRT,” and asked if the company is struggling to allocate capital.
“Businesses in decline often have two underlying trends, firstly, a declining return on capital employed (ROCE) and a declining base of capital employed,” Simply Wall St. explains. “Ultimately this means that the company is earning less per dollar invested and on top of that, it’s shrinking its base of capital employed.”
After glancing at trends within iHeartMedia, Simply Wall St. was rather glum.
Why? It found that iHeartMedia has an ROCE of 3.1%. “Ultimately, that’s a low return and it under-performs the media industry average of 11%,” it says. “To be more specific, today’s ROCE was 6.3% five years ago but has since fallen to 3.1%. On top of that, the business is utilizing 50% less capital within its operations. The combination of lower ROCE and less capital employed can indicate that a business is likely to be facing some competitive headwinds or seeing an erosion to its moat. Typically businesses that exhibit these characteristics aren’t the ones that tend to multiply over the long term, because statistically speaking, they’ve already gone through the growth phase of their life cycle.”
