TKO Group Stock: Is TKO Underperforming the Communication Services Sector?

TKO Group Holdings, Inc. (TKO), headquartered in New York, provides sports entertainment services, as well as focuses on organizing live events. Valued at $34.6 billion by market cap, the company is also involved in the merchandising of video games, apparel, equipment, trading cards, memorabilia, digital goods, and toys. 

Companies worth $10 billion or more are generally described as “large-cap stocks,” and TKO definitely fits that description, with its market cap exceeding this threshold, reflecting its substantial size, influence, and dominance in the entertainment industry. TKO’s strength lies in its portfolio of dominant brands, UFC and WWE, which combined drive significant media rights, live event revenue, and global sponsorship deals.

Despite its notable strength, TKO slipped 19.5% from its 52-week high of $226.94, achieved on Feb. 26. Over the past three months, TKO stock declined 10.4%, underperforming the State Street Communication Services Select Sector SPDR ETF’s (XLC) 7% gains during the same time frame. 

In the longer term, shares of TKO fell 12.6% on a YTD basis and dipped 6.7% over the past 52 weeks, underperforming XLC’s YTD losses of 4% and 3.5% over the last year.

To confirm the bearish trend, TKO has been trading below its 50-day and 200-day moving averages since early July, with some fluctuations. 

TKO’s underperformance stems primarily from governance and legal overhangs, elevated valuation sensitivity, and earnings volatility, despite solid fundamental revenue growth. Although the business continues to generate strong top-line momentum from live events and media rights, sentiment has been persistently weighed down by shareholder litigation related to the WWE-UFC merger, high-profile insider selling by executives, and persistent quarterly earnings misses, such as its Q2 results failing to meet Wall Street EPS expectations. 

TKO’s rival, Madison Square Garden Sports Corp. (MSGS) has taken the lead over the stock, with a 55.8% gain on a YTD basis and an 81.5% uptick over the past 52 weeks.

Wall Street analysts are bullish on TKO’s prospects. The stock has a consensus “Strong Buy” rating from the 24 analysts covering it, and the mean price target of $228.55 suggests a potential upside of 25.1% from current price levels.