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Invest in Gangnam Style: Buy PSY's Employer YG Entertainment Listed in Korea

November 08, 2012 | About:
YG Entertainment (122870:KOSDAQ) and SM Entertainment (041510:KOSDAQ) are two of Korea's largest entertainment management companies. They make money through publishing music records with their record label arm and managing the activities of its artists through their talent agency arm.

Head-to-Head Comparison


SM Entertainment has K-pop stars BoA, TVXQ, Super Junior, Girls’ Generation, SHINee under its stable; while artistes PSY, Big Bang, 2NE1, Se7en are with YG Entertainment.

Financial Metrics:

SM Entertainment is more expensive at 40.7x EV/EBITDA, 49.9x P/NTA and 62.1 Price/Sales; while YG Entertainment trades at 41.0x EV/EBITDA, 10.5x P/NTA and 10.9x Price/Sales.

The current valuations embed higher growth expectations for SM Entertainment which trades at 23.1x Forward P/E compared with 35.5x Forward P/E for YG Entertainment

Both do not have dividends and have a strong financial position. SM Entertainment has a gross debt/equity of 9%, while YG Entertainment is debt-free.

In Closing

Current valuations are clearly out of reach for many value investors, with too much uncertainty in the assessment of the earnings power of intangible assets such as PSY and Super Junior.

However, stocks are called growth stocks when they are priced at 30x P/E; and value stocks when they fall to 10x P/E. Value investors should keep an open mind, make mental notes of interesting stocks and be ready to seize opportunities when valuations are attractive.

About the author:

Mark Lin
Mark is a private value investor and runs the Cheapskate Investing website which borrows from the wisdom of value investing giants, using a systematic quantitative screening approach to filter the global stock markets for cheap deep-value cigar-butts and wide-moat compounders. He publishes value investing case studies, investment checklists, and potential stock ideas on the Cheapskate Investing blog. He is also a regular contributor to various value investing communities.

Visit Mark Lin's Website

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