Is News Corporation’s (NASDAQ:NWSA) Stock Valuation Supported by Its Financial Fundamentals?

News Corporation (NASDAQ:NWSA) has seen its stock price rise 6% over the past three months, sparking debate about whether its valuation aligns with underlying financial fundamentals. At first glance, the company’s return on equity (ROE) appears modest—some reports cite a trailing twelve-month (TTM) ROE of 5.95% [1], while others highlight a full-year 2025 ROE of 14.14% [2]. This discrepancy, coupled with a 49% net income growth in recent periods and a shrinking payout ratio, demands closer scrutiny.

ROE: A Tale of Two Metrics

ROE, a critical measure of shareholder returns, is calculated as net income divided by shareholders’ equity. For News Corp, the numbers tell conflicting stories. The company’s Q4 2025 report cited a 14.14% ROE for fiscal 2025 [2], while TTM data from other analyses suggests a lower 5.95% [1]. This divergence likely stems from differences in calculation methodologies: the 14.14% figure uses end-of-period equity, whereas the 5.95% TTM ROE may reflect average equity over the period.

A deeper look at News Corp’s balance sheet reveals shareholders’ equity of $9.389 billion as of June 30, 2025 [3]. Using this figure and the company’s FY2025 net income of $1.18 billion, ROE would be approximately 12.57% ($1.18B / $9.389B). This suggests that neither the 14.14% nor 5.95% fully captures the metric’s nuance, underscoring the importance of methodology in ROE analysis.

Earnings Growth: A Surge Amid Stagnant Revenue

Despite a lackluster revenue growth rate (0.3% annualized over five years) [4], News Corp has delivered staggering net income growth. For Q2 2025, net income from continuing operations jumped 58% year-over-year to $306 million [5], driven by its Digital Real Estate Services and Dow Jones segments. Over five years, earnings have grown at a 45.1% compound annual rate [6], far outpacing the 9.4% industry average for media firms. This decoupling of revenue and profit growth highlights News Corp’s cost discipline and margin expansion—its operating margin hit 13.96% in FY2025 [7].

The company’s shrinking payout ratio further amplifies this growth. While the three-year median payout ratio was 39% [8], the current ratio stands at 15.68% [2], indicating a strategic shift toward reinvesting earnings rather than distributing them to shareholders. This approach could fuel future growth, particularly in high-margin segments like digital real estate and professional information services.

Valuation: Does the Math Add Up?

News Corp’s valuation multiples appear mixed. The stock trades at a trailing price-to-earnings (P/E) ratio of 14.67 and a forward P/E of 29.81 [7], suggesting the market is pricing in optimism about future earnings. However, its ROE of ~12.5% (using FY2025 data) lags behind the 12% industry average [9], raising questions about whether the 6% recent price rise is justified.

The key lies in reconciling short-term performance with long-term potential. While ROE dipped in TTM periods, the company’s five-year earnings growth and aggressive reinvestment (via a $1 billion stock buyback program [10]) signal confidence in its ability to compound value. Additionally, News Corp’s debt-to-equity ratio of 0.31 [7] suggests a conservative capital structure, reducing the risk of overleveraging as it funds growth initiatives.

Risks and Considerations

Investors should remain cautious about ROE volatility. A one-time gain or accounting adjustment—such as the $456 million increase in pension liabilities noted in FY2025 filings [3]—could distort equity figures and, by extension, ROE. Furthermore, the company’s revenue decline (-5.4% annualized over three years [4]) indicates that earnings growth may not be sustainable without meaningful market expansion.

Conclusion

News Corp’s stock valuation appears partially supported by its fundamentals. While ROE figures are inconsistent and below industry benchmarks, the company’s earnings growth, margin resilience, and strategic reinvestment create a compelling case for long-term value creation. The recent 6% price rise may reflect anticipation of these trends, but investors should monitor upcoming quarterly reports for clarity on ROE normalization and revenue stabilization. For now, News Corp remains a high-conviction play for those willing to navigate its financial complexities.

Source:
[1] News Corporation Q3 2025 Earnings Driven by Digital Real Estate [https://www.monexa.ai/blog/news-corporation-q3-2025-earnings-driven-by-digita-NWSA-2025-06-11]
[2] News Corporation Q4 2025 Earnings Analysis: Digital Growth [https://www.monexa.ai/blog/news-corporation-nwsa-q4-2025-earnings-analysis-st-NWSA-2025-08-06]
[3] News Corporation (NWSA) Income Statement - Yahoo Finance [https://finance.yahoo.com/quote/NWSA/financials/]
[4] News (NasdaqGS:NWS) - Earnings & Revenue Performance [https://simplywall.st/stocks/us/media/nasdaq-nws/news/past]
[5] News Corporation Reports Second Quarter Results for Fiscal 2025 [https://investors.newscorp.com/news-releases/news-release-details/news-corporation-reports-second-quarter-results-fiscal-2025]
[6] Has News Corporation (NASDAQ:NWSA) Stock's Recent Performance Got? [https://news.futunn.com/en/post/61176467/has-news-corporation-nasdaq-nwsa-stock-s-recent-performance-got?futusource=news_newspage_recommend]
[7] News Corporation (NWS) Valuation Measures & Financial [https://finance.yahoo.com/quote/NWS/key-statistics/]
[8] News Corporation (NWSA) Return on Equity (ROE) Annual [https://valuesense.io/ticker/nwsa/roe]
[9] Is News Corporation's (NASDAQ:NWSA) Recent Stock [https://finance.yahoo.com/news/news-corporations-nasdaq-nwsa-recent-132608451.html]
[10] News Corporation Reports Fourth Quarter and Full Year Results Fiscal 2025 [https://www.nasdaq.com/press-release/news-corporation-reports-fourth-quarter-and-full-year-results-fiscal-2025-2025-08-06]