Why Discovery Communications Stock Fell 19% in August

By Demitrios KalogeropoulosFool.com

What: TV network giant Discovery Communications saw its stock fall 19% during the month of August, according to S&P Capital IQ data. The drop has left shareholders staring at a 39% loss over the last full year. Discovery's stock is down 21% since the beginning of 2015, compared to a 5% loss for the broader market.

DISCA data by YCharts.

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So what: Sure, investors sold Discovery off as part of the general stock market carnage last month. But the bigger driver behind the drop was the second-quarter earnings results that Discovery announced in early August. The company posted 3% higher quarterly sales along with 16% lower profits, just as Wall Street expected. Yet the results showed evidence of a slowdown in the TV advertising market that makes up more than half of Discovery's business. Higher ad prices failed to deliver any growth in the ad business, which is now flat through the first two quarters of the year.

Tempering that bad news was the fact that distribution fees are up 12% so far this year. The company's international business is also growing quickly. Still, it isn't encouraging that distribution and affiliate fees account for all of the network's global sales and profit gains through the first six months of 2015.

Now what:Management seems more optimistic about Discovery's growth potential than Wall Street. In fact, executives are "bullish on our third quarter ad trends as our improved delivery, especially at Discovery, is allowing us to continue to take advantage of a healthier market," Chief Financial Officer Andy Warren said in a conference call with analysts. The team is calling for modest advertising growth next quarter but says it's still to early to tell how the end of the year will shake out.

That's why investors who prefer to buy stocks during times of pessimism might want to take a closer look at Discovery. The overall market has sold off, and media companies have been hit particularly hard lately. All of that negativity has pushed shares to a valuation of just 17 times last year's earnings, which is the cheapest quote we've had for Discovery's business since 2012.

The article Why Discovery Communications Stock Fell 19% in August originally appeared on Fool.com.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool owns and recommends Discovery Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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