Validea is an advisory service which assesses stocks based on the investing criteria of many of the market's leading stock pickers. Editor John Reese looks at MSG Networks (MSGN), formerly The Madison Square Garden Company.

MSG Networks is engaged in sports production, and content development and distribution. Its networks are distributed throughout its territory, which includes all of New York State and significant portions of New Jersey and Connecticut, as well as parts of Pennsylvania.

The company delivers live games of the New York Knicks, the New York Rangers, New York Islanders, New Jersey Devils and Buffalo Sabres, among others.

Our recommendation for MSG Networks is based on the small-cap growth strategy of the Motley Fool:

PROFIT MARGIN: PASS

This methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns. A true test of the quality of a company is that they can sustain this margin. MSGN's profit margin of 41.86% passes this test.

RELATIVE STRENGTH: PASS

The investor must look at the relative strength of the company in question. Companies whose relative strength is 90 or above (that is, the company outperforms 90% or more of the market for the past year), are considered attractive. Companies whose price has been rising much quicker than the market tend to keep rising. MSGN, with a relative strength of 90, satisfies this test.

CASH FLOW FROM OPERATIONS: PASS

A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc. A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. MSGN's free cash flow of $2.73 per share passes this test.

PROFIT MARGIN CONSISTENCY: PASS

MSGN's profit margin has been consistent or even increasing over the past three years (Current year: 41.46%, Last year: 24.78%, Two years ago: 1.16%), passing the requirement. It is a sign of good management and a healthy and competitive enterprise.

CASH AND CASH EQUIVALENTS: PASS

MSGN's level of cash $205.3 million passes this criteria. If a company is a cash generator, like MSGN, it has the ability to pay off debt (if it has any) or acquire other companies. Most importantly, good operations generate cash.

ACCOUNT RECEIVABLE TO SALES: PASS

This methodology wants to make sure that a company's accounts receivable do not get significantly out of line with sales. It's a warning sign if a company's accounts receivable relative to sales increases significantly when compared to the previous year. Up to a 30% increase is allowed, but no more. Accounts Receivable to Sales for MSGN was 18.09% last year, while for this year it is 17.62%. Since the AR to sales is decreasing by -0.47% the stock passes this criterion.

LONG TERM DEBT/EQUITY RATIO: PASS

MSGN's trailing twelve-month Debt/Equity ratio (0.00%) is at a great level according to this methodology because the superior companies that you are looking for don't need to borrow money in order to grow.

"THE FOOL RATIO" (P/E TO GROWTH): PASS

The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less (MSGN's is 0.48), the shares are looked upon favorably. These high-quality companies can often wind up as the biggest winners. MSGN passes this test.

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