Have you caught the Formula One bug?
Like many, I was hooked after watching the first season of Drive to Survive on Netflix. I loved the mix of fast-paced Formula One action on the track and personal drama in the paddock. My wife calls it “Real Housewives of Racing,” ha!
Now … I’m obsessed. I’m up at ungodly hours of the morning to catch practice and qualifying sessions on the other side of the world, my social feeds are dominated by F1 analysis and I’m even considering attending a race next season (and I thought a Disney trip was expensive…).
But one person is doing everything he can to kill the Formula One hype machine…
Max Verstappen is on an absolute tear. He’s won eight straight races and could easily win eight more. It’s like watching prime Michael Jordan or Tiger Woods.
The problem is that his dominance, combined with a lack of exciting racing action throughout the rest of the field, has led to a lot of boring Sunday drives.
For those that are deep in the single-seater trenches, it’s not a huge issue. We’ll still watch knowing there’s a chance the next race will give us what we all so desperately crave this season.
But what happens when the more casual fans start driving away? And more importantly, as investors, what does that mean for Formula One stock?
The American Formula One Boom
No bones about it, Formula One is a European sport. The most exposure I had to it before Drive to Survive was watching Jean Girard and Ricky Bobby duke it out in Talladega Nights.
But the Formula One boom in America is real. Liberty Media, Formula One’s owners, reported massive profits in 2022 compared to 2021. Operating income increased 333% to $173 million, according to Forbes.
And with three races on American soil this year, alongside a TV deal with ESPN to broadcast in the U.S. — and eventually in Latin America, Mexico and the Caribbean — there will be more eyes watching Verstappen’s dominant run.
Forbes ESPN’s U.S. viewership broke records in 2022, with an average of 1.21 million viewers across its flagship channels and ABC. That’s 28% higher than in 2021.
I’m part of that boom, but I’m starting to wonder if this is all too much, too fast.
Tickets to the inaugural Las Vegas Grand Prix in November start at $1,821 for a three-day pass as I write. For comparison, three-day passes for an IndyCar race in Florida earlier this year were $150 a pop. Sure, St. Petersburg doesn’t offer the same glitz and glamor of the strip, but I could buy a t-shirt, a few beers at the race and still have about $1,500 to spare. (And that may be the route I go next year.)
I could be way off. Formula One could very well sustain this growth and become the true king of motorsport across the globe.
To gain some clarity, I turned to Adam O’Dell’s Green Zone Power Ratings system.
And it’s waving double yellow flags right now.
Investors Bet Big on Formula One Stock
Right now, Formula One Group (Nasdaq: FWONK) — aka Liberty Media Series C in Adam’s system — rates a “Neutral” 53 out of 100 in Green Zone Power Ratings.
FWONK’s Green Zone Power Ratings in August 2023.
Neutral-rated stocks are expected to perform in line with the broader market. And that tracks with FWONK, considering it is up around 18% year to date, while the S&P 500 is up 17% as I write.
That’s nothing to scoff at, of course. But Green Zone Power Ratings helps us parse out stocks with much greater potential.
I mentioned the stellar net profit growth in 2022, which contributes to FWONK’s 87 rating on the Growth factor.
But as Matt touched on yesterday, Liberty Media delivered a bad earnings surprise when it missed on earnings per share estimates by $0.41 last quarter. It also reported $724 million in revenue, $38.2 million lower than expected.
Overall, the company is still delivering solid growth and momentum. But there’s one factor that worries me.
FWONK rates a 21 out of 100 on Value. I worked with Matt to figure out what’s going on here. He found that the stock was trading at a price-to-earnings ratio (P/E) of 40. That’s almost twice its industry average at 23!
Price to sales is also more than three times higher than its industry (6.7 versus 1.7).
These are telltale signs of a stock that investors have bid up banking on sustained growth. But if Formula One’s popularity and profits slow down, the stock is likely to hit the brakes as well.
For now, I’ll follow Green Zone Power Ratings, watch Verstappen’s dominance from the comfort of my couch and find a better place to invest my hard-earned cash.
Until next time,
Chad Stone
Managing Editor, Money & Markets
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