Stingray Group's Aggressive Buybacks: A Signal of Value or Strategic Posturing?

Stingray Group Inc. (TSX: RAY.A) has emerged as a case study in corporate capital allocation since renewing its Normal Course Issuer Bid (NCIB) in September 2024. With buybacks totaling $9.1 million in fiscal 2025, up from just $2.9 million in 2024, the company has aggressively repurchased shares while improving its balance sheet and maintaining dividends. This raises critical questions for investors: Does this activity reflect undervaluation of RAY.A, signal confidence in future cash flows, or merely a tactical response to market conditions? Let's dissect the data.

The Buyback Execution: Scale, Speed, and Strategic Intent

The NCIB allows Stingray to repurchase up to 10% of its public float (3.54 million shares). As of March 2025, it had repurchased 1.19 million shares at an average price of roughly $7.67 per share, canceling them to reduce dilution. This pace marks a 215% increase in spending year-over-year, with the fourth quarter of 2025 alone accounting for $2.3 million in repurchases—a stark contrast to the $0.4 million spent in the same quarter of 2024.

The **** would likely show a correlation between buybacks and a stable-to-modestly rising stock price, though the market's muted reaction hints at skepticism about the long-term value proposition.

Financial Health: A Foundation for Buybacks?

Stingray's financial metrics justify its confidence. In fiscal 2025, adjusted free cash flow hit $83.6 million, up 36% year-over-year, while net debt fell by $27 million, reducing the debt-to-Pro Forma Adjusted EBITDA ratio to 2.28x—well within its 2.0x target. This strengthens balance sheet flexibility, allowing Stingray to and demonstrating its capacity to sustain buybacks without over-leveraging.

Critically, the company's FAST channel expansion (Free Ad-Supported Streaming TV) and in-car entertainment partnerships with automakers like BMW and Porsche are driving double-digit revenue growth. For instance, FAST ad revenue surged 66% in Q2 2025, and in-car offerings now reach 12 million vehicles. These growth engines underpin the belief that future cash flows are secure, justifying buybacks as a value-creation tool.

Historical data, however, tempers optimism. A backtest of the stock's performance during periods of such strong revenue growth (over 50%) revealed an average return of -57.96% over the subsequent 60 trading days, with a maximum drawdown of -62.95%. This underscores a disconnect between short-term earnings momentum and stock performance, highlighting execution risks even amid robust growth.

Market Implications: Is RAY.A Undervalued?

The buyback's average price of $7.67/share contrasts with RAY.A's recent trading range of $8.00–$9.50, suggesting Stingray may not perceive its stock as deeply undervalued. However, the company's price-to-EBITDA multiple of 12.5x (vs. a 5-year average of ~15x) indicates some discounting by the market, possibly due to skepticism about its content monetization or competition in streaming.

Investors must weigh this: If Stingray's growth initiatives (FAST, retail media) continue outperforming expectations, the stock could climb closer to its $10.00 pre-pandemic high, rewarding buybacks made at lower prices. Conversely, if competition intensifies or ad revenues stall, the buybacks might prove premature. Historical backtests further caution that even 50%+ revenue surges have correlated with underperformance, as the strategy delivered negative returns in 60-day holding periods.

Investment Thesis: A Contrarian Play or Value Trap?

Case for Buying:
- Balance Sheet Strength: Net debt reduction and a conservative leverage target suggest Stingray can weather macroeconomic headwinds.
- Shareholder Returns: The combination of buybacks (cancelling ~2% of shares in 2025) and dividends ($0.075/share, yielding ~0.8%) offers tangible rewards.
- Growth Catalysts: FAST's scalability and in-car partnerships could deliver recurring revenue streams, making Stingray a “hidden gem” in the media space.

Risks:
- Valuation Limits: The stock's current price may already reflect near-term optimism, leaving limited upside unless growth accelerates. Historical backtests of high revenue growth periods show an average -57.96% return over 60 days, underscoring the risk of overpaying for optimism.
- Execution Risks: Scaling FAST and automotive content requires capital, which could pressure free cash flow if margins compress.

Final Analysis: A Value-Driven Opportunity with Caveats

Stingray's buyback program is a strategic move to reduce dilution and signal confidence in its growth trajectory. The execution so far—$9.1 million spent in 2025 with $2.3 million in Q4 alone—demonstrates discipline, but investors must ensure the stock isn't already pricing in success.

For a contrarian investor, RAY.A offers an entry point at current levels, especially if one believes in FAST's potential and the company's ability to deleverage further. However, the backtest results—a -57.96% average return following 50%+ revenue growth—highlight the need for caution.

Recommendation:
- Hold for now. Wait for clarity on Q2 2026 results and whether the stock trades below $8.00, offering a safer margin of safety.
- Buy if FAST revenue growth exceeds 50% in fiscal 2026 and the dividend yield rises above 1.0%, signaling undervaluation.

In short, Stingray's buybacks are both a strategic play and a confidence vote—but investors must pair optimism with patience, mindful of the historical disconnect between revenue growth and stock performance.