As a post-pandemic narrative, Live Nation Entertainment (LYV) delivered a compelling opportunity for forward-thinking contrarians. At the time, the economy struggled under the weight of COVID-19. However, consumers longed for normalcy despite the intriguing rise of so-called contactless services. Because Live Nation specializes in promoting, operating, and managing ticket sales for various events, LYV stock was essentially bound for a recovery once society normalized.
Indeed, over the past five years, Live Nation’s equity gained around 313%. It was not the most outstanding performance during this period, but it was impressive. At the same time, the ascent of LYV stock was helped in no small part by the Biden administration’s efforts to boost the devastated economy. Politics aside, what can be agreed upon is that former President Joe Biden prioritized economic recovery initiatives.
Fast-forward to the present day, and the framework has shifted dramatically. Donald Trump’s tariffs have created alarm within the investor community. Generally speaking, trade wars represent headwinds for consumers, as they’re the ones who end up paying the price. Given that Live Nation is a luxury and not a necessity, I am presently bearish on LYV stock.
Financial Argument for LYV Stock Raises Skepticism
Based on key financial metrics, LYV stock doesn’t necessarily look like a poor investment. The stock trades at 1.22x trailing 12-month (TTM) sales and as low as 1.07x in Q1. At the time, though, the company was growing from the post-pandemic malaise, so there was reason to be optimistic.
Also, without context, the valuation based on sales multiples seems reasonable. Analysts project that by the end of FY2025, Live Nation will generate $26.47 billion in revenue—up 14.3% from last year’s tally of $23 billion. For FY2026, analysts forecast LYV to post 9% higher sales of $29 billion. With these forecasts in mind, LYV stock would be trading at around 1.05x 2025 sales and 0.96x 2026 sales. That aligns well with prior trends, meaning that LYV isn’t trading at a discount but is not distinctly overpriced. More or less, it’s trading where it belongs.
However, the concern is that the analysts’ projections are overly optimistic given current economic realities. For example, food prices are consistently rising, as are costs related to shelter. Food and utilities are required staples that cannot be substituted, but luxuries like concerts or ball games can. Such things are nice to have or enjoy but are not necessary to sustain life. As push comes to shove, more and more consumers will have to make tough choices.
Given its strong tie to discretionary spending, which requires footfall, LYV stock is inherently disadvantaged in the current economic environment, which includes the specter of recession and an expected retreat from discretionary spending by U.S. consumers.
Bearish Options Strategy Available for the Bold
Enterprises with a potentially bearish outlook should obviously be avoided — if you’re bullish on the stock. For bearish, risk-hungry, short-term, opportunistic market participants, there is a way to extract “negative value” from ill-favored securities via the bear put spread.
Functionally, the bear put spread is similar to buying straight put options, meaning the trader is pessimistic about the target security. However, another step is simultaneously selling a put option at a lower strike price of the same expiration date.
Let’s take a look at a real-world example. In the trailing month, LYV stock lost almost 23% of its equity value. It could revert to the mean temporarily, as in enjoying a dead-cat bounce. Still, you might anticipate that LYV could drop to $115 over the next month, maybe even lower.
Under this assumption, you could buy the 120/115 bear put spread for the options chain expiring on April 17. This transaction involves buying the $120 put (at a time-of-writing ask of $580) and simultaneously selling the $115 put (at a current bid of $350). You use the proceeds from the short put to partially offset the debit paid of the long put, thus paying a net debit of $230.
Remember that the bid/ask prices fluctuate constantly, so the actual price you see will likely differ from the above. Nevertheless, the concept is the same. You are effectively discounting a net bearish position with the short put.
One of the main drawbacks is that the reward potential is limited by the short put. Should LYV stock fall below the $115 short put strike price at expiration, you don’t get extra rewards for that move. Still, buying a straight put option would cost you $580. Therefore, many traders are tempted by the discount that the options spread strategy provides.
Is Live Nation Entertainment (LYV) a Good Stock to Buy?
On Wall Street, LYV stock carries a Strong Buy consensus rating based on 13 Buy, one Hold, and zero Sell ratings over the past three months. LYV’s average price target of $169.07 per share implies almost 40% upside potential over the next twelve months.
Shifting Tides Warrant a Bearish Turn on LYV Stock
Ultimately, Live Nation’s viability depends on the broader consumer landscape, and right now, the outlook isn’t particularly encouraging. While the company has delivered impressive growth in the past, harsh economic realities are already putting significant pressure on discretionary spending. Given these concerns, a cautious stance seems warranted.
For those willing to take a more active approach, the bear put spread presents an intriguing way to capitalize on potential downside risk. By structuring a trade that limits upfront cost while maintaining bearish exposure, traders can navigate this uncertain terrain with a balanced risk-reward profile.
Questions or Comments about the article? Write to editor@tipranks.com