LION

Lionsgate Studios ($LION) Major Shareholder Buys $54.79M Despite Stock Near Lows, Extreme Undervaluation Draws Attention

07/02/2025 03:40

Lionsgate Studios ($LION) is capturing investor attention as major shareholder buying signals emerge despite ongoing stock price weakness. Trading near its 52-week low at $5.76, the stock tells a different story when examining insider trading data. Lionsgate Studios is a mid-tier Hollywood entertainment company known for blockbuster franchises like 'John Wick' and 'The Hunger Games' series, along with diverse television programming. In early May 2025, the company completed its strategic separation from streaming service STARZ, becoming a pure-play content production company. This spin-off was overwhelmingly approved by over 99% of shareholders, establishing a foundation for each business unit to pursue independent growth strategies. The most notable development is the recent buying activity by major shareholder Liberty 77 Capital L.P. This investment firm purchased approximately 8.7 million shares across five transactions from May 28 to June 26, totaling $54.79 million. Particularly significant was the two-day buying spree on May 28-29, when they acquired about 7.4 million shares for roughly $49.06 million. These purchases occurred during a period of continued stock decline, with an average purchase price around $6.30. Liberty 77 Capital's actions appear strategically motivated rather than mechanical. Operating as a sophisticated Cayman Islands exempted limited partnership, insiders disclaim beneficial ownership except for their pecuniary interests, suggesting these purchases are purely investment-driven for returns. Lionsgate's current valuation metrics indicate significant undervaluation. The price-to-sales ratio of 0.41x is well below the industry average of 1.0x, while the EV/Revenue multiple of 1.33x compares favorably to the industry average of 2.0x. Most notably, the EV/EBITDA ratio of 5.85x is substantially lower than the industry range of 8-10x, clearly indicating undervaluation relative to profitability. However, earnings performance presents mixed signals. Q1 2025 adjusted earnings per share of 21 cents significantly missed analyst expectations of 41 cents. Conversely, quarterly revenue of $1.07 billion exceeded expectations of $983.77 million. This suggests revenue growth is occurring despite delayed profitability improvements. Broader entertainment industry restructuring adds another dimension. Warner Bros Discovery's recent announcement to split streaming and cable operations reflects a trend toward business structure optimization among major media companies. Within this context, Lionsgate's STARZ separation appears strategically well-timed. Positive catalysts include potential cost savings through AI technology adoption and growing digital content demand. The company's partnership with AI firm Runway to develop customized AI models could enhance creative process efficiency and reduce production costs. Additionally, expanding content partnerships with Amazon Prime Video represent new revenue opportunities. Risk factors include potential tariffs on foreign films due to US-China trade tensions. Morgan Stanley warns that tariffs up to 100% could reduce film output and increase costs, negatively impacting profitability. Intensifying streaming competition and changing consumer spending patterns also present uncertainties. From an investment perspective, the current situation presents clear opportunities alongside risks. Continued major shareholder buying provides a strong positive signal, while extremely depressed valuations suggest significant upside potential. However, the pace of earnings improvement and degree of industry competition will be key variables in stock recovery. The scheduled May 22 annual earnings release will serve as an important inflection point for future direction. In conclusion, Lionsgate Studios presents an intriguing investment opportunity where structural change meets undervaluation despite current stock weakness. Considering strong insider buying signals and reasonable valuations, the stock merits attention from a medium to long-term investment perspective.