It’s been precisely one 12 months since Genius Manufacturers (NASDAQ:GNUS) inventory touched its excessive of $11.73. At present, GNUS inventory trades some 85% decrease at $1.80.
I’m reminded of a bearish view printed by Hindenburg Analysis again in June. The report concluded that GNUS “appreciated in worth by greater than 20x on comparatively mundane information.” It additionally stated that “the stock will drop as quickly as it skyrocketed.”
In fact, it may not be a good suggestion to quick a penny stock. Nonetheless, presently GNUS nonetheless appears to be like costly and unattractive from an funding perspective.
As an summary, Genius Manufacturers is a media firm that’s primarily within the enterprise of selling, producing and licensing kid-focused content material. Possibly most fascinating is the corporate’s Kartoon Channel! offering, which is out there in “over 100 million U.S. tv households by way of a broad vary of distribution platforms.”
Nonetheless, what’s extra necessary right here is the valuation. For the primary quarter of 2021, the corporate reported income of about $1.1 million. This might suggest an annualized income of $4.4 million. Presently, although, GNUS inventory trades at a market capitalization of $541 million. Subsequently, this inventory is buying and selling at 122.9 occasions fiscal-year 2021 income.
Clearly, valuations are stretched right here, even after a giant correction from all-time-highs. It’s additionally value noting that there is no such thing as a clear income steerage from administration. So, whereas this firm does have aggressive progress plans, its money burn and potential for additional fairness dilution might preserve GNUS inventory depressed.
GNUS Inventory: The Positives
Within the final one 12 months, there was an enormous fairness dilution with GNUS inventory. This is likely one of the causes behind its sharp correction. Nonetheless, the excellent news is that, as of March, Genius reported cash and equivalents of $143 million. As such, it has sturdy monetary flexibility to pursue natural and inorganic progress.
Moreover, within the final annual letter, CEO Andy Heyward talked about the hiring of Bedi Singh and Jason Adelman, who’re each seasoned M&A veterans. If Genius can pull off a promising acquisition, the complete bearish thesis for this inventory will probably change.
Plus, in one other progress initiative, the corporate introduced that 240 hours of new content shall be coming to its Kartoon Channel! platform. This can be a potential income upside set off.
Nonetheless, there are nonetheless some issues which are hanging over GNUS inventory proper now.
For instance, in its Q1 2021 report, the corporate additionally talked about its Stan Lee’s Superhero Kindergarten program surpassing 16 million views. Nonetheless, the corporate reported promoting income of simply $0.75 million for the quarter. Moreover, licensing and royalty income got here to roughly $0.17 million. These figures present that the enterprise must scale views considerably in an effort to ship wholesome income and money flows.
It’s necessary so as to add right here that Kartoon Channel! is free to observe. Subsequently, the corporate largely depends on that promoting and licensing for its income upside.
Moreover, Genius Manufacturers is worldwide markets for progress. For instance, the following season of certainly one of its hit animated collection, Rainbow Rangers, shall be available to international audiences by way of Netflix (NASDAQ:NFLX) and different streaming platforms quickly.
That is definitely a constructive improvement. Nonetheless, the influence on income continues to be unsure right here. In reality, the present value motion doesn’t counsel that the markets are relying on any vital bump-up.
The Backside Line on GNUS Inventory
Genius Manufacturers reported money utilized in operations of $5.9 million as of Q1 2021 (Web page 33). This might suggest an annualized money burn of almost $24 million. With the corporate nonetheless at an early stage of progress, money burn is more likely to maintain.
On the identical time, it’s necessary to notice that content material creation is the important thing to progress in Genius’ viewers and subscribers. Subsequently, investing exercise is more likely to stay excessive as nicely. This may necessitate extra fundraising within the subsequent 12 to 24 months.
It appears to me that the markets nonetheless have a scarcity of belief with administration right here. Even with a flurry of constructive information, GNUS inventory has not seen any vital upside. As such, I imagine that the market’s notion will change provided that administration delivers sustained progress and game-changing acquisitions.
For now, this inventory appears to be like unattractive from an funding perspective. That stated, it’s essential to level out that GNUS inventory has a short interest of 14.1%. Any constructive information might set off a brief squeeze. So, whereas I stay impartial to bearish on the inventory, it might even be finest to keep away from taking any quick positions right here.
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On the date of publication, Faisal Humayun didn’t have (both instantly or not directly) any positions in any of the securities talked about on this article. The opinions expressed on this article are these of the author, topic to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior analysis analyst with 12 years of trade expertise within the subject of credit score analysis, fairness analysis and monetary modelling. Faisal has authored over 1,500 inventory particular articles with concentrate on the expertise, power and commodities sector.