The Ten Most Undervalued Stocks: The Washington Post Company (WPO)

A lot of investors don’t like companies with two classes of shares. When a small group contols the board, shareholders sometimes believe that a takeover at a premium is off the table. Certainly stockholders at The New York Times Company have been screaming about this for some time.

The Washington Post Company has two classes of shareholders, but management has done a number of very smart things. The Post trades like a newspaper company. It shares go for 1.8 times sales, almost identical to newspaper chain giant Gannett.

But, The Washington Post is not a newspaper company. It just looks like one on the outside. Its stock has certainly traded like most newspaper stocks. The shares are down from close to $1,000 two years ago to the current price of $727.

Granted, The Post has a paper in the nation’s capital that has virtually no competition, and a profitable broadcast group.

The primary driver of WPO earnings is its online education business, Kaplan. Kaplan’s revenue has tripled since 2002

In the quarter endng October 1, online education revenue was $421 million out of a total of $947 million for the parent company. Operating income from the unit was $38 million compared to $109 million for the parent. The Post’s operating income is about 12% of revenue. At The New York Times Company, that figure is under 3%.

The Washington Post Company has not been a newspaper company for several years. But, the market may not have caught on.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.