Should you buy Man Utd stock since Cristiano Ronaldo is back?

I am a Man Utd fan and I am as happy as other fans about the return of Ronaldo.

The investors love it too as Manchester United’s (NYSE:MANU) share price jumped as much as 11% on the day of the announcement (27 Aug 2021) – yes, Manchester United stock has been listed for 9 years if you do not know already. Another fun fact, they had considered listing in Singapore but ended up choosing a U.S. listing instead.

I wrote previously about 11 football clubs that are publicly listed and suggested you should not invest in them.

But with Ronaldo back, should we reconsider this proposition? I’ll dive deeper into the financial statements and answer you. Moreover, we can learn a thing or two about the financial analysis of public companies.

#1 Revenue has been flat for 5 years

Man Utd’s revenue was £516m in 2016 and just £509m in 2020. But let’s give them a chance, considering that 2020 was hit by Covid.

You can see that both the Broadcasting and Matchday revenues have gone down:

If we take the period between 2016 and 2019, the revenue grew by 22% or just 7% compounded annual growth rate (CAGR).

Fund manager Peter Lynch would label this a slow grower. Even the entire China’s GDP grows by 5-6%. So Man Utd is definitely not a growth stock.

#2 More than half of the revenue goes to salaries

We know the top football stars are paid an obscene amount of salaries.

Cristiano Ronaldo is rumoured to be paid £480,000 per week. That is a £6m pay cut a year from his previous stint in Juventus. That said, he is going to be the highest-paid Man Utd player, surpassing David De Gea who earns £375,000 per week.

10 highest-paid players in Man Utd (per week basis):

1. Cristiano Ronaldo: £480,000
2. David De Gea: £375,000
3. Jadon Sancho: £350,000
4. Raphael Varane: £340,000
5. Paul Pogba: £290,000
6. Anthony Martial: £250,000
7. Edinson Cavani: £250,000
8. Marcus Rashford: £200,000
9. Harry Maguire: £189,000
10. Bruno Fernandes: £180,000

Just these 10 players will cost Man Utd £151m in a year, excluding bonuses!

In 2020, their Employee benefit expenses were £284m and that alone is 56% of the revenue! Similarly, 53% of 2019’s revenue went into salaries.

We all know that these top football teams need to constantly buy players and lure them with attractive salary packages.

There has been inflation in recent years as more dollars were pumped into the transfer market by the rich football club owners. The transfer fees and salaries are more likely to go up than down in the next few years. This would depress the earnings of the company.

#3 Losses in some years and low profit margins

If it isn’t a growth stock, then investors should expect the business to be profitable and a cash cow.

Unfortunately, Man Utd didn’t pass the test either. It had suffered 2 losses in the last 5 years.

Losses aside, the profit margin, return on assets (ROA) and return on equity (ROE) aren’t inspiring either:

	2019	2017	2016
Net profit Margin	3%	7%	7%
ROA	1%	3%	3%
ROE	5%	8%	8%

#4 Weak balance sheet

The balance sheet was as disappointing as the income statement – equity has been falling and leverage ratio has been rising.

Debt/Equity ratio has increased from 109% in 2016 to 154% in 2020.

These leverage levels are much higher than the other UK companies in the Communication Services sector that averaged a Debt/Equity ratio of 46%.

#5 Unattractive valuations

These price metrics indicated that Man Utd isn’t a value stock.

• Price/Book Ratio = 5.4 (sector average at 3.6)
• Price/Sales Ratio = 4.3 (sector average at 3.3)
• Dividend Yield = 1% (sector average at 0%) this is better
• Free Cash Flow Yield = 3.9% (sector average at 2.5%) this is better too

Conclusion: Buy the jersey, not the stock

You should know by now I do not fancy the stock at all. It exhibited no growth while profitability isn’t strong and consistent. Yet, the stock price isn’t low enough to justify it as a value stock. Even a 1% dividend yield isn’t enough for passive income. There’s really no reason to buy it.

I would even go on to say that even if you are a Man Utd fan and want to own a piece of it, you should consider buying the jersey. At least you get to contribute to its revenue and hopefully their bottom line.