TKO Group: A Hidden Growth Gem in the Entertainment Sector?

The entertainment sector has been a battleground for growth in recent years, with streaming platforms and live events vying for consumer attention. Among the players, TKO Group Holdings (NYSE: TKO) stands out as a potential undervalued gem, driven by underappreciated earnings catalysts and favorable sector trends. Despite a P/E ratio of 81.9x—arguably elevated for its stage of growth—TKO's fundamentals and strategic moves suggest the market may have mispriced its future potential. Let's unpack why.

The Earnings Catalysts: Growth Hidden in Plain Sight

1. Accelerating Earnings Momentum
TKO's earnings growth is the most compelling argument for its undervaluation. With a 32.36% annual earnings growth forecast, the company has already demonstrated resilience, outperforming revenue growth in key quarters. For instance, Q1 2025 saw EPS exceed expectations despite revenue growth, signaling margin expansion opportunities. This trend could continue as TKO scales its streaming platform, UFC FIGHT PASS, and leverages its intellectual property (IP) library.

2. Strategic Capital Allocation
TKO's $2 billion equity buyback program, initiated in October 2024, and its appointment of Dwayne “The Rock” Johnson to its board in 2023 highlight a focus on shareholder value and brand influence. The buyback alone could reduce shares outstanding by ~6%, amplifying EPS growth. Meanwhile, Johnson's star power could open doors to new content partnerships and global markets, further monetizing TKO's IP.

3. Upcoming Catalysts: Q2 Earnings and Beyond
With Q2 2025 results due on August 6, investors will scrutinize whether TKO's growth trajectory holds. If the company exceeds estimates again, it could reposition its stock, currently seen as 21% overvalued by some metrics. Analysts will also watch for guidance on streaming subscriber growth, live event attendance recovery, and margin improvements—key indicators of sustainable momentum.

Sector Tailwinds: Riding the Wave of Consumer Demand

1. The Streaming Surge
The global streaming market is projected to hit $180 billion by 2028, driven by cord-cutting and demand for on-demand content. TKO's UFC FIGHT PASS, already a leader in combat sports, could capitalize further by expanding into adjacent genres or bundling with other properties. Competitors like Live Nation (LYV) and Spotify (SPOT) are thriving in this space, yet TKO's niche focus may offer higher margins and less direct competition.

2. Live Events: Back in the Spotlight
Post-pandemic recovery in live events has been uneven, but TKO's mix of premium sports and entertainment events—think UFC pay-per-views and branded live experiences—positions it to benefit from rising consumer confidence. In 2025, live event revenue for the sector grew 18%, and TKO's ability to command premium pricing for its events could sustain this trend.

3. Regulatory Risks, But Manageable
While TKO faces a minor antitrust lawsuit, its 27% debt/equity ratio and 18% payout ratio suggest financial flexibility to absorb such challenges. Shareholder dilution concerns, though valid, are mitigated by the buyback program and the fact that TKO's leadership has prioritized disciplined capital deployment.

The Case for TKO: Buy the Dip, Wait for the Surge

Despite a 54.9% stock return in 2025, TKO has underperformed the broader entertainment sector's 67.6% gain. This gap creates an opportunity: if TKO meets or exceeds growth forecasts, its valuation could align with peers, offering a 20%+ upside. Key triggers include:
- A strong Q2 earnings report.
- Evidence of margin expansion beyond 6%.
- Positive updates on streaming subscriber growth or new content deals.

Investors should also note the upcoming dividend payout of $0.38/share on June 30, which, while modest, adds to TKO's appeal as a “growth with income” play.

Final Take: TKO's Time to Shine

TKO's blend of IP-driven content, live event dominance, and strategic capital moves positions it to outperform in the coming years. While risks like regulatory scrutiny linger, they are outweighed by the company's growth runway. For investors willing to look past the high P/E ratio, TKO presents a compelling entry point ahead of its Q2 results—a chance to buy a growth engine at a discount.

Investment Recommendation: Consider accumulating TKO shares ahead of its August earnings report, with a target price reflecting 2026 earnings growth. Set a stop-loss below recent lows to manage volatility.

Data as of July 2025. Past performance does not guarantee future results.