Over the past six months, fuboTV has been a great trade, beating the S&P 500 by 21.1%. Its stock price has climbed to $4.12, representing a healthy 36.9% increase. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is there a buying opportunity in fuboTV, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Do We Think fuboTV Will Underperform?

We’re happy investors have made money, but we're swiping left on fuboTV for now. Here are three reasons you should be careful with FUBO and a stock we'd rather own.

1. Weak Growth in Domestic Subscribers Points to Soft Demand

Revenue growth can be broken down into changes in price and volume (for companies like fuboTV, our preferred volume metric is domestic subscribers). While both are important, the latter is the most critical to analyze because prices have a ceiling.

fuboTV’s domestic subscribers came in at 1.36 million in the latest quarter, and over the last two years, averaged 9.7% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

2. Operating Losses Sound the Alarms

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

fuboTV’s operating margin has risen over the last 12 months, but it still averaged negative 12.2% over the last two years. This is due to its large expense base and inefficient cost structure.

3. Cash Flow Margin Set to Decline

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Over the next year, analysts predict fuboTV’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 8.7% for the last 12 months will decrease to 3.8%.

Final Judgment

fuboTV falls short of our quality standards. With its shares topping the market in recent months, the stock trades at 89.1× forward P/E (or $4.12 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.

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