Is Paramount Skydance a Buy Post-Merger, Short Squeeze?

Key Points

• Paramount Skydance got off to a hot start in its first week of trading, with many believing the stock was the subject of a short squeeze.
• David Ellison is the new Chief Executive Officer, with backing from one of the richest people in the world; his father.
• Is it time to buy into the company's ambitious vision?

Since it began trading under its new name on August 7, shares of Paramount Skydance NASDAQ: PSKY have put on an impressive showing. As of the August 18 close, shares are up 15%. The new company is looking to reinvent the traditional media giant with a tech-centric approach.

However, there is a problem: every Wall Street price target tracked by MarketBeat indicates that shares are already overvalued. However, the company is making big-time moves to shake up the entertainment landscape.

Below, we’ll look to answer the question: Is Paramount Skydance a name worth investing in now?

Making the Market’s Latest Stock: The Paramount Skydance Merger

On August 7, Paramount, the owner of CBS and the Paramount+ streaming service, completed its merger with Skydance Media. Skydance is a film and TV production company founded by David Ellison. It is famous for producing hits like True Grit and Top Gun: Maverick. David is the son of Oracle NYSE: ORCL co-founder Larry Ellison, one of the world's wealthiest people, and will lead the new firm.

The plan in the future is as follows: combine Paramount’s extensive content library with the Ellison family's technological expertise and deep pockets to revive the media giant. In Q2 2025, Paramount’s revenue was down more than 12% compared to Q2 2022.

Ellison plans to make Paramount Skydance “the world’s most technologically capable media company." He will embrace artificial intelligence to create content more efficiently and unify the company’s cloud infrastructure to improve content delivery.

Paramount Pony’s Up for UFC to Promote Long-Term Strategy

Adding new and exciting sources of content is also part of the plan. Paramount Skydance recently bought the rights to exclusively display Ultimate Fighting Championship (UFC) events for the next seven years. Shares fell around 4% on August 11 in reaction to the deal, as the company is paying $1.1 billion a year for these rights. That’s double the $550 million annually that ESPN paid over the past five years. 

This raises serious questions as to whether Paramount Skydance will make its money back on the deal. Still, that’s not the ultimate goal. The company wants to increase the attractiveness of Paramount+ to add subscribers.

Acquiring the rights to a media asset with 100 million fans is a good way to do that. It could also act as key leverage to boost subscription prices.

PSKY Spikes on Likely Short Squeeze, Leaving Shares Above Targets

On August 13, shares of PSKY closed up nearly 36%, up as much as 58% intraday. A short squeeze likely caused this, with retail traders buying shares and causing others to buy to cover their short positions. PSKY didn’t release any relevant news that day, and the stock had significant short interest.

Only around 30% of PSKY’s shares are available for public trading. This increases the likelihood of a short squeeze as well as the magnitude if one occurs.

Shares have come back down to earth, closing at $13.50 on Aug. 18. Still, that figure is way above MarketBeat’s $10.50 consensus price target, which implies 22% downside in shares. Even Guggenheim’s $13 price target, the most bullish forecast on the stock, implies 3.7% downside.

PSKY’s Valuation Looks Elevated, Q3 Updates Will Be Key

Over the past 12 months, Paramount generated $507 million in free cash flow (FCF) and has an enterprise value (EV) of about $24.5 billion. Enterprise value is useful for comparing companies with different levels of debt because it accounts for both debt and equity.

This gives the stock and EV/FCF ratio of 48x. This compares to EV/FCF ratios of around 22x for Walt Disney NYSE: DIS and 14x for Warner Bros. Discovery NASDAQ: WBD, two similar businesses. 

At face value, it appears that PSKY is trading at a significant premium to these two names. However, the implicit financial backing of Larry Ellison, with an approximate net worth of nearly $300 billion, is a big positive.

Considering these metrics and the fact that the stock is trading higher than Wall Street price targets, Paramount Skydance doesn’t feel like a name that investors should rush into. The combined company says it will provide a business update, including a financial outlook, with its Q3 earnings.

That’s likely to happen in late October or early November. It feels prudent to wait to see the firm’s updated forecasts and get a better understanding of its plan before making an investment decision.