One of my favourite UK stocks still looks undervalued

In the rapidly changing world of media and publishing, one company is quietly changing the rules: Future (LSE: FUTR). This FTSE250 Dynamo has seen its share price rise an impressive 43.5% over the past year. As a long-time fan of the company’s strategy, I believe this UK stock continues to offer compelling value to discerning investors. Let’s take a closer look.

Success of digital transformation

Future has successfully moved away from traditional print media to become a digital content powerhouse. Its portfolio spans a variety of sectors, including technology, gaming, fashion and finance. This diversification has not only broadened its revenue streams, but also insulated it from the volatility often associated with niche markets.

The numbers tell a fascinating story. The company boasts a market capitalisation of £1.18bn, with a price-to-earnings (P/E) ratio of 13.8. The discounted cash flow (DCF) also suggests the stock is undervalued by around 58%, although that is by no means certain in the short term. Management seems to be confirming this undervaluation, as it is pursuing a 26m share buyback programme.

Management is forecasting annual profit growth of 9.4% for each of the next three years, with EPS set to grow by a healthy 11.2% per year. While not spectacular, following a 36% increase in profits since last year, these forecasts paint a company with stable growth prospects. This is particularly true given the difficult economic environment that many UK businesses are currently facing.

While a 2.7% future revenue growth over the next three years may seem a bit disappointing at first glance, it’s important to consider this in the context of strategic acquisitions and ongoing digital transformation. The company has demonstrated a knack for successfully integrating new brands and monetizing its growing digital audience.

Overcoming challenges

Of course, the business faces its challenges. The media landscape is notoriously competitive and rapidly changing, requiring constant innovation and adaptation. With debts of £320m, the debt-to-equity ratio of 29.3% is worth monitoring, although it is not alarmingly high for a growth company. More worryingly, this is up from 23.8% last year.

I am also slightly disappointed that recent earnings have shown a slight decline, with earnings per share for the first half of 2024 coming in at £0.29, down from £0.47 for the same period last year.

It meets all my requirements

Despite its impressive run, Future still appears undervalued given its growth prospects and market position. The company’s successful digital transition, coupled with its diverse brand portfolio, positions it well to capitalize on evolving media consumption trends.

To me, the company offers an attractive combination of growth potential and relative stability. The company’s history of successful acquisitions and its ability to monetize digital content across platforms provide ample opportunities for future growth.

In summary, Future remains one of my favourite UK stocks. Its digital-first approach, diverse brand portfolio and solid growth outlook make it an intriguing proposition for investors looking to capitalise on the ongoing digital media revolution.

Sure, the world of digital media is constantly changing, but the company seems well-positioned to not only adapt but thrive in this dynamic environment. I will be holding onto my shares for the foreseeable future.