Jun 10, 2021
[3 min Read]
I'd like to share my thoughts on Discovery, Inc. (DISCA).
Discovery, Inc. is a media company, which engages in the provision of content across distribution platforms and digital distribution arrangements. It operates through the following segments: U.S. Networks and International Networks. The U.S. Networks segment owns and operates national television networks such as Discovery Channel, Animal Planet, and Investigation Discovery and Science. The International Networks segment consists of international television networks and websites. The company was founded by John S. Hendricks in September 1982 and is headquartered in Silver Spring, MD.
I'm bullish on DISCA for a few reasons:
Short Interest, the company is in the top 10 out of 11,000 companies trading in the US with 29.8% short interest as a % of outstanding. Only 6 other companies have more SI (GEO, PubMatic, Altimeter, HUYA, Colivs, and Marcus).
The stock has been driven down. The stock capped just a couple months ago at almost 80 dollars, it's been crushed down to 30 dollars by short sellers.
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3. Financials are healthy, the company has 10 billion in sales and expected to have 12 billion next year, margins are good at 50% gross margin and 11% net margin.
4. Why do shorts attack it? Well, I have a feeling it's their debt, the company has almost 15 billion in long term debt. The good news, however, is that their debt is mostly at around 3-4% interest, unlike other stocks like AMC that are paying around 10-17% on their debt.
5. Option activity yesterday was strong, look at the call volume relative to put volume. If this continues and we see new out of the money options written we could find ourselves in a gamma squeeze.
6. How much is it worth? The company is trading at a market cap of just under 20B, so they're trading at less than 2x sales and generating about 3 billion in operating cash flow per year. A 40B valuation wouldn't even get the stock back to where it was 3 months ago. If this catches on I could see us going into the 60+ per shrae range.
Most importantly, this is the company that brought us the discovery channel, animal planet, history channel, and other great programming. I actually believe in fighting back against the shorts that took this from 78 down to 30, and I think if more people see what happened to this stock we could get some real upward momentum.