Where Is ViacomCBS Stock Headed After Almost 50% Value Erosion?

ViacomCBS stock (NASDAQ: VIAC) has lost almost half of its value in just the last three months as the stock dropped from $80 to $42 currently. The market had been over enthusiastic about the stock since the beginning of 2021 due to its effort of transforming to a streaming giant from a traditional cable media company. However, this enthusiasm was short-lived. The management decided to take advantage of the boom in the stock price by offering additional shares to raise close to $3 billion. This issue was priced at $85 per share, which was a 15% discount to where the stock had been trading on 22^nd March ($100 per share). In addition to the fact that the new issue would dilute the existing shareholders’ value, commentary from Wall Street research firms that the company’s management itself does not think that the recent rally of the stock to $100 is justified, led to a sharp reversal in fortune. This led to the stock declining ever since, and the drop over the last three months comes to about 48%. Additionally, the equity swap fiasco at Archegos Capital Management led to the hedge fund selling 30 million shares of VIAC stock in an apparent move to liquidate the fund, thus exacerbating the fall inVIAC’s stock price. But will VIAC stock continue its downward trajectory over the coming weeks, or is a recovery in the stock more likely?

According to the Trefis Machine Learning Engine, which identifies trends in a company’s stock price data for the last ten years, returns for VIAC stock average little over 22% in the next one-month (21 trading days) period after experiencing a 48% drop over the previous six-month (126 trading days) period. The stock is likely to outperform the S&P500 over the next six months, with an expected return which would be almost 13.5% higher compared to the S&P500.

But how would these numbers change if you are interested in holding VIAC stock for a shorter or a longer time period? You can test the answer and many other combinations on the Trefis Machine Learning to test VIAC stock chances of a rise after a fall and vice versa. You can test the chance of recovery over different time intervals of a quarter, month, or even just one day!

MACHINE LEARNING ENGINE – try it yourself:

IF VIAC stock moved by -5% over five trading days, THEN over the next 21 trading days, VIAC stock moves an average of about -1 percent, which implies a return which is 2.4 percent lower than that of the S&P500.

More importantly, there is 48% probability of a positive return over the next 21 trading days and 44% probability of a positive excess return after a -5% change over five trading days.

Some Fun Scenarios, FAQs & Making Sense of Viacom’s Stock Movements:

Question 1: Is the average return for ViacomCBS stock higher after a drop?

Answer:

Consider two situations,

Case 1: ViacomCBS stock drops by -5% or more in a week

Case 2: ViacomCBS stock rises by 5% or more in a week

Is the average return for ViacomCBS stock higher over the subsequent month after Case 1 or Case 2?

VIAC stock fares better after Case 2, with an average return of -0.8% over the next month (21 trading days) under Case 1 (where the stock has just suffered a 5% loss over the previous week), versus, an average return of 4.5% for Case 2.

In comparison, the S&P 500 has an average return of 3.1% over the next 21 trading days under Case 1, and an average return of just 0.5% for Case 2 as detailed in our dashboard that details the average return for the S&P 500 after a fall or rise.

Try the Trefis machine learning engine above to see for yourself how ViacomCBS stock is likely to behave after any specific gain or loss over a period.

Question 2: Does patience pay?

Answer:

If you buy and hold ViacomCBS stock, the expectation is over time the near-term fluctuations will cancel out, and the long-term positive trend will favor you – at least if the company is otherwise strong.

Overall, according to data and Trefis machine learning engine’s calculations, patience absolutely pays for most stocks!

For VIAC stock, the returns over the next N days after a -5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:

Question 3: What about the average return after a rise if you wait for a while?

Answer:

The average return after a rise is generally lower than after a fall as detailed in the previous question. Interestingly, though, if a stock has gained over the last few days, you would do better to avoid short-term bets for most stocks – although VIAC stock appears to be an exception to this general observation.

VIAC’s returns over the next N days after a 5% change over the last five trading days is detailed in the table below, along with the returns for the S&P500:

It’s pretty powerful to test the trend for yourself for ViacomCBS stock by changing the inputs in the charts above.

We believe that the stock has been beaten down enough. The company’s focus on streaming and revival of traditional businesses as lockdowns are lifted and vaccine coverage increases will lead to a rise in VIAC stock in the near term.

Want upside from growing digitization post Covid-19, but don’t want to pay a big premium for tech stocks? Check out our theme on Value Tech Stocks

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