Over the past six months, The New York Times’s shares (currently trading at $50.80) have posted a disappointing 5.2% loss, well below the S&P 500’s 2.5% gain. This may have investors wondering how to approach the situation.
Is now the time to buy The New York Times, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Despite the more favorable entry price, we're cautious about The New York Times. Here are three reasons why we avoid NYT and a stock we'd rather own.
Why Is The New York Times Not Exciting?
Founded in 1851, The New York Times (NYSE:NYT) is an American media organization known for its influential newspaper and expansive digital journalism platforms.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, The New York Times grew its sales at a sluggish 7% compounded annual growth rate. This fell short of our benchmark for the consumer discretionary sector. 
2. Weak Growth in Subscribers Points to Soft Demand
Revenue growth can be broken down into changes in price and volume (for companies like The New York Times, our preferred volume metric is subscribers). While both are important, the latter is the most critical to analyze because prices have a ceiling.
The New York Times’s subscribers came in at 11.09 million in the latest quarter, and over the last two years, averaged 10.8% 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. 
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We typically prefer to invest in companies with high returns because it means they have viable business models, but the trend in a company’s ROIC is often what surprises the market and moves the stock price. Unfortunately, The New York Times’s ROIC has decreased over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
The New York Times’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 26.2× forward price-to-earnings (or $50.80 per share). At this valuation, there’s a lot of good news priced in - we think there are better investment opportunities out there. Let us point you toward TransDigm, a dominant Aerospace business that has perfected its M&A strategy.
Stocks We Would Buy Instead of The New York Times
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