Yahoo Finance

Overall, TKO's first quarter tells the story of a company actively growing its empire in sports and entertainment.

Some top growth catalysts

The company's current surge is due to a set of well-planned actions that may help it grow steadily on various levels. Below are the main factors that are boosting investors' confidence:

S&P 500 Inclusion: Joining the S&P 500 is one of the biggest catalysts for TKO at this point. Being included in the index gives legitimacy in the larger market. Even if TKO comes in as stock number 496, it doesn't make a difference. S&P status allows passive purchase from the world's biggest funds, like Vanguard, BlackRock, State Street, all of which track the index. These funds now have to purchase TKO shares in order to remain in balance, and this will represent a constant flow of demand. It won't happen overnight as rebalancing schedule is varied and the effect will be gradual. But after getting in, TKO now receives a positive effect of that ongoing, automatic flow of capital. It is the type of structural support that can help to support long-term price strength, something especially valuable in volatile markets.

Strategic partnership fueling tech and combat sports: TKO is on an expansion streak and it's nailing it in tech, sports, and global reach. The UFC's new multiyear partnership with Meta is a highlight, not just a brand placement. It's a massive submergence of Meta AI, Quest headsets, and even smart glasses into the fan experience. Dana White says it is a game-changer and he could be right.

Live events and partnerships driving high-margin growth: Meanwhile, TKO is entering the boxing ring, literally, with a new promotion that it has formed with Saudi Arabia's Sela, supported by the mighty Public Investment Fund. This move is a bold departure from UFC and WWE and leverages the existing fan base of TKO while cashing in on Saudi Arabia's deep pockets and eagerness for global sports. With Dana White and Nick Khan in the Executive team, the promotion is in safe hands. They both have a track record of success from the UFC and WWE, particularly in Saudi events. It's a coming venture that will change the world's perception of boxing, and give TKO another avenue for success.

Add to that a big play in Australia, where Perth is becoming a hotbed for UFC and WWE events through 2026. Due to an expanded partnership with the Western Australian Government, the city will host five key events this year, including a UFC Fight Night at RAC Arena later this year. It's a clear indication that TKO is going big in international expansion, exporting its blockbuster shows to new global fans, and strengthening ties in one of the most important Asia-Pacific markets.

Media rights driving a recurring revenue engine: WWE's flagship programs, RAW and SmackDown are shows with huge weekly TV viewership and live audiences that can reach the tens of thousands. These are the main events of WWE in which the top-tier talent performs. They are made possible by big agreements with top media houses, so they keep providing recurring revenue for years to come. UFC, too, has a prosperous deal with ESPN, that both monetizes its major events and helps the brand be promoted across ESPN's various platforms. Because interest in live sport and premium content is growing worldwide, TKO's collection of media rights is proving to be a versatile and profitable asset.

But WWE isn't stopping there. In March 2025, it rolled out Evolve on Tubi (FOX), and LFG on A&E (Disney), both platforms to put the spotlight on up-and-comers from the Indies (ID) and Next-In-Line (NIL) college athlete pools. Although ratings are not yet in, the move is evidence of WWE's efforts to control all stages of a wrestler's career, from an unknown hopeful to WrestleMania headliner. It is more about manufacturing stars as compared to just finding them.

Further talent development: TKO is making big moves by expanding its WWE talent pipeline. WWE has been on top of the pro wrestling scene for decades, but its hold on talent development becomes stronger and smarter.

Below RAW and SmackDown sits NXT, the developmental league of the company. It is like AAA baseball, which is still serious business, but more playing with raw talent. NXT airs once a week in front of a few hundred fans while hundreds of thousands watch online.

Beginning of a dividend: Let's move to the next catalyst. Whether a company can pay a dividend, even a small one, has been one of the long-running litmus tests for many investors. It is a gesture of sound financial position and a vote of confidence by the management on the company's earning capacity. Although the current dividend yield is not that impressive at 0.95%, it is still a modest gesture. The company announced a quarterly dividend of $0.38, yielding an annual payout of $1.52 and a payout ratio of only 17.08%, which leaves a lot of room for growth if the management decides to do so. TKO started to pay a cash dividend on a quarterly basis, from its first ex-date on 14th March 2025, and first payment on 31st March. This is equivalent to a $75 million payout from the firm, which is close to a little under 15% of their current treasury cash.

Taken together, these catalysts are a measure of TKO's transformation from a combat sports leader to a worldwide sports-entertainment juggernaut. With international expansion, stronger control of talent, and monetization with the help of structural market support, TKO is well-positioned for long-term growth.

Stretched valuation poses concern but growth keeps the hope alive

Let's now discuss the company's valuation. TKO Group's valuation certainly catches the eye, although not necessarily and entirely in a good way. If you look at the numbers, the stock looks expensive. For the non-GAAP trailing P/E ratio, it is over 50 times when compared to a sector median of approximately 12. Even going forward, it remains up near 46. That is more than triple the price most of its peers are trading at. A similar situation is with GAAP earnings. The multiples are through the roof, which means that investors are making huge bets on future performance.

The enterprise value metrics tell a similar story. TKO's EV/EBITDA is at about 30 times on a trailing basis compared with only 10 for the sector median. Even forward-looking, it's still elevated. In plain terms, investors are currently forking out a significant premium for each dollar of earnings before interest, taxes, depreciation, and amortization.

But then, here's the curveball. The PEG ratio based on non-GAAP forward earnings is a modest 0.16 times. That's quite a low number, and usually indicates the stock may be a bargain if the earnings growth really takes off. It's a big if, though, and that's the catch.

So overall, TKO is priced as a firm that has something to prove in a major way. However, the twist is that analysts believe that it just might. Earnings are expected to ramp up fast in the next few years as you will see in the next heading. This optimistic prognosis could be used to rationalize the current premium and pull those valuation multiples downto earth.

Analysts forecast strong growth for TKO

Notwithstanding its high valuation, the growth narrative of TKO is grabbing attention of analysts, and the numbers through 2027 are encouraging. From 2025, earnings-per-share are projected to jump to $3.50, which is an astonishing 357.08% YOY increase, providing the post-merger benefit of IMG, On Location, and PBR. In the same year, the revenue is expected to rise to $4.47 billion, an increase of almost 59%. This is a solid indication that the market is confident in TKO's scaling ability and varied revenue streams.

Source: Consensus EPS estimates (Seeking Alpha)

This will rise to a further $5.75 by 2026, with revenue at $5.75 billion. Although the EPS growth retards to a healthy 14.63%, it indicates a ripening expansion phase in which the synergies from the acquisitions start to provide more sustainable profitability. Analysts are also expecting TKO's valuation to normalize as well with forward P/E falling from 47.05x in 2025 to around 24x in 2026.

Source: Consensus Revenue estimates (Seeking Alpha)

Going into the year 2027, the story changes slightly. EPS is expected to be fairly stable at $6.6, while the revenue is anticipated to drop slightly to $5.46 billion or 5% decrease. That dip could be down to cyclical factors or more comps from a blockbuster prior year, but three analysts still expect good earnings and a forward P/E of 23.8x, and confidence is thus still there.

To sum it up, analysts view TKO as a high-growth entertainment beast through 2026, with some possible normalization by 2027.

Peer comparison: How TKO stacks up

As opposed to its industry peers, TKO Group is not the only one with a premium valuation, but it does stand out. Live Nation (LYV, Financial) and Liberty Media's Formula One Group (FWONK, Financial) both come with high multiples, but TKO's are just as high, if not higher, in some places.

For example, TKO's forward P/E non-GAAP (FY1) is 45.94 times, lags LYV's 67.14 times and FWONK's 51.71 times. Two years down the line, TKO starts to appear more sensible with a forward P/E (FY2) of 27.94 times, and LYV and FWONK still higher at 47.86 and 44.00 respectively.

On an EV/EBITDA basis, TKO changes hands at 29.80 trailing, which is more expensive than LYV's 18.18 but much cheaper than FWONK's 42.94. Therefore, though TKO appears expensive today, its future seems better.

TKO's PEG ratio is impressive here. It is an incredibly low 0.16 times on a forward non-GAAP basis, much lower than LYV 6.12 and FWONK 2.51 times, which indicates that the analysts are expecting a much higher earnings growth in comparison with valuation.

In layman terms, all three companies are charging premium prices, but TKO seems to have a more defined path toward growing into its valuation, assuming that its growth projections hold up.

Source: Author generated based on historical data

Price target outlook: What's the street and the story saying?

TKO Group enjoys an excellent run having gained 15.24% year-to-date and 56.5% in a year.

Momentum is evidently on its side, and Wall Street appears to be of the same mind. There are 19 analysts that have provided 12-month price targets for ADS, with a mean target of $174.89, implying about 6.3% upside from the current $164.5. The estimates are wide, from an optimistic $220 to a more conservative $115, both reflecting excitement and ambiguity about TKO's peculiar post-merger path.

So, how much do we expect from here? With the estimated 357% increase in EPS next year, and strong double-digit growth for the next two years, the company seems to be entering a period of rapid earnings normalization. Revenues are also poised to rocket, and valuation multiples will be under pressure to contract as profitability will be brought back to the premium price.

Bearing all of that in mind, I think that a realistic 12-month price target for TKO could be anywhere between $185$190. That calls for a mild 12.515.5% upside, not too aggressive but one that attests to better fundamentals and rising confidence in investor, whilst allowing for potential obstacles to post-merger execution.

TKO insider buying signals confidence and potential

One positive sign for TKO investors is the high rate of insider buying. Most companies usually experience a constant flow of insider selling, which is usually because of pre-planned stock sales or profit taking. However, in the case of TKO, surprisingly, the number of insider buys has been quite high.

In the last three years, the insiders have bought approximately 13 million shares but sold almost 17 million. That's buying rate of about 76% over selling which is quite high compared to the rest of the public companies where buying is negligible or does not exist. Even more importantly, there have been no insider sales in the last 3 months while there are still purchases.

This pattern indicates a sense of confidence from management and the key stakeholders. Although insider activity in isolation does not dictate where the stock will go in the future, regular buying, particularly in a high-growth, high-valuation setting such as TKO suggests that insiders believe there is some potential present.

Gurus are betting big on TKO

Another promising indication for TKO investors is the attention it is getting from recognized institutional and hedge fund investors, so called gurus. Consistent guru buying has been exhibited in the chart over the last three years with a surge in late 2023 and early 2024 while the stock price rose progressively.

Names, such as Renaissance Technologies (Trades, Portfolio) (Trades, Portfolio) , Ray Dalio (Trades, Portfolio) (Trades, Portfolio) , and Mario Gabelli (Trades, Portfolio) (Trades, Portfolio) , don't simply buy into hype; they're associated with value-conscious strategies. Notably, Ray Dalio (Trades, Portfolio) (Trades, Portfolio) acquired additional 26.8% of the shares, and Louis Moore Bacon (Trades, Portfolio) (Trades, Portfolio) decided to make a bold move by increasing his stake by 1625%. Such conviction is impressive.

Although there has been some selling along the way, the quantity of buys has regularly been equal to or greater than the sales. This mixed activity isn't unusual; portfolio rebalancing is a common activity in the management of funds. What matters is that a good number of top-tier investors remain or increase their positions even at higher prices. This is an indicator of the confidence in TKO's future and this confidence being supported by some of the brightest in the market.

Risks to my thesis

Though there is much to like about TKO's long-term growth story, there are a few red flags to watch out for.

A short-term issue that the company faces is the speculation about TKO's possible inclusion into the S\&P 500. Although that may increase visibility, these events are likely to draw speculative trading that typically results in short-term price spikes followed by a correction. It is a two-edged sword that might create volatility in the short run.

Another risk to be considered is the company's dividend strategy. While TKO has the cash to cover payouts, it's currently paying out more than it's generating in net profits. That's doable for the time being, but unless the profits jump up a lot, they might have to go into reserves more frequently, which is not something they can do forever.

TKO-EDR merger achieved increased leverage for the company. With substantial debt, Endeavor paid for the merger, leaving TKO with over $3 billion in long-term debt post-merger. That puts a lot of pressure on the balance sheet. Even though stable contracts with media firms cushion the fall, having this kind of leverage means earnings must stay on track. It's a cost investors should take seriously.

Finally, valuation is possibly the biggest risk. The stock is priced for perfection, with multiples far above market average. That can work if growth does not slacken. However, if the earnings do not increase to meet expectations, then the stock is likely to experience a painful correction.

Your takeaway

TKO Group is finding its feet in all areas, combining sports, entertainment, tech, and world conquest into a powerful growth vehicle. The company's strong Q1 results, the UFC and WWE momentum that is booming, and a constant stream of catalysts position the company to have a hard-to-ignore story. Yes, the valuation is expensive, but analysts and even insiders are making large bets that future earnings will catch up very quickly. Throw in increasing institutional interest and a burgeoning dividend, and you have high-risk, high-reward play with massive potential. That being the case, this is not a stock to buy and leave. Execution risk is real and the premium pricing allows for little room to make mistakes.

For investors who are willing to stay tuned in and have the stomach for a little volatility, TKO could be a main-event performer in the making.

This article first appeared on GuruFocus.