Entravision: Riding A Demographic Wave

True or False: An approximately 4% yield from a leveraged micro-cap is too hot to handle. Often that will be true. But Entravision Communications (EVC), a media company that serves the U.S. Latino community, is a much better story; current income, demographics-driven growth, and less risk than one might presuppose.

In this Thursday, July 23, 2015, photo, DJ Daniel Perez, "El Garbanzo" holds up Erazmo's mask, at the "El Show de Erazno y La Chokolata" radio show in Los Angeles. Diaz's show is broadcast by Entravision and reaches over 2 million people nationwide. (AP Photo/Damian Dovarganes)

Why this Stock is Being Considered

It’s important before you start to read about or evaluate a stock, to know why it came under consideration be comfortable soundness of those reasons. Entravision Communications (EVC) showed up in the Mico-Nano Cap screen I created on Portfolio123 that searched among the smallest (yet still tradable) stocks for those whose fundamentals, although not necessarily up to large-cap standards, still look acceptable, enough so to justify a focus on size and the inherent qualities of very small companies. Details of the screen are described in a 6/18/18 blog post and an approach to assessing the sometimes-challenging stocks that can appear on a list thusly created were discussed in a 6/21/18 follow-up.

That it’s an intriguing income play had nothing to do with the screen and comes as an unexpected bonus.

A Hispanic Media Company

If you live in the United States and speak Spanish as your only language, or as a language that’s important to you, and if you watch TV or listen to the radio, you’re undoubtedly familiar with Univision and Telemundo. Those are the big-time networks that distribute much of what you’ll view and listen to. The name Entravision will probably be unfamiliar, but Hispanic people in many major locales in the U.S. are probably regular viewers or listeners of Univsision programming aired over TV and/or radio stations owned by this company. In markets served by Entravision, the Unavision network with which its stations are affiliated has a 63% share of Spanish Language viewers age 18-49.

Catching Dr. D’s Long Wave

Spanish-speaking people have been in the news a lot lately, but investors need to look beyond here-and-now hype and focus on the big picture. And regardless of what this talking head or that shouting head says, here’s what’s important (source: Entravision’s latest 10-K SEC filing): 

  • At 18% of the overall U.S. population, Hispanics constitute the nation’s largest minority group;
  • The Hispanic population is growing 8 times faster than the non-hispanic population and is projected to account for 21% of the U.S. population by 2022;
  • About 78% of Hispanics age 5 and over speak some Spanish, and among Hispanics, 64% are bilingual and 33% speak predominantly Spanish;
  • Average Hispanic household income was $57,000 in 2017 and is growing faster than the rate being achieved by non-Hispanics
  • Political shouting and arguing and hand-wringing is all well and good but I believe that at the end of the day, Mr. Market ultimately marches to the cadence established by Dr. D (Demographics).

And when we hone in on the portion of all this that’s relevant to companies whose revenue base is tied to advertising, here are a few more beats:

  • Hispanics tend to have larger and younger households (averaging 3.4 persons and 30.8 years, versus 2.4 persons and 43.8 years);
  • Despite less disposable income on average, Hispanic households on average and compared to non-Hispanic households spend (per year):
    • 8% more per year on food and non-alcoholic beverages consumed at home,
    • 38% more on restaurants,
    • 55% more on children’s clothing,
    • 41% more on footwear,
    • 31% more on soaps, detergents, and other cleaning products, and
    • 19% more on cellular phone service.
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