When it comes to Genius Brands (NASDAQ:GNUS), making the argument for shares being the next big thing in investing is foolhardy. But following a big-time exit stage right by investors, today’s GNUS stock and options market builds the case for buying more smartly in an often imperfectly priced world.
Apple (NASDAQ:APPL). Costco (NASDAQ:COST). Coca-Cola (NYSE:KO). As investors we’ve all heard the stories of fabulous riches made from those iconic market leaders over the course of long-term stock ownership. And price charts of AAPL and other gargantuan multi-baggers do show that very truth, albeit along with a sometimes bumpy path in capturing those famed returns.
But if you’re looking to find the next Apple, Costco, Coke or maybe more aptly, the next Netflix (NASDAQ:NFLX), investors might be wise to dismiss Genius Brands as a heir apparent. That’s not too say though that investors need to remain at arm’s length from GNUS stock.
So, what is Genius Brands? The company offers a streaming video on demand entertainment source for children called Kartoon Channel. It’s a new venture for GNUS. But given Covid-19’s impact on stay-at-home living, entering a still growing SVOD market and looking to capture some of the sizable ad dollars spent on our youngins’ education with a targeted kid’s platform sounds brilliant, right? The problem and a large obstacle for Genius is proper execution.
As InvestorPlace’s Luke Lango writes, the business pivot from traditional TV distribution into streaming for Genius Brands makes sense. But the company’s modest financial position isn’t something that works in the outfit’s favor and where investors can rest easy anticipating a much larger valuation down the road.
So, what’s the problem? According to Luke, GNUS has an issue with cash and scale. The thing is, Genius Brands has meager resources to produce compelling content to challenge larger competitors. The company’s $3 million on hand isn’t a lot. Moreover, against the likes of Disney (NYSE:DIS), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) who collectively spend about $3 billion each year on children’s content, it’s an obvious short-coming.
Genius could borrow, right? The company could tap the capital markets. But realistically, with a valuation of around $450 million, financing the sort of necessary commitment the larger players are spending, wouldn’t be easy, if not entirely impossible.
The good news is Genius isn’t entirely new to the world of developing quality media. The company does have legacy series such as Llama Llama or Rainbow Rangers, which it has produced and distributed. Unfortunately, the efforts aren’t exactly trending strongly with young audiences. It’s another knock against pitching GNUS stock as the next NFLX.
Still and to be open-minded in a market that rarely values stocks fairly, Genius’ current price chart and options market does have us seeing things a bit more appreciatively than otherwise.
GNUS Stock Daily Price Chart
Source: Charts by TradingView
The reality of Genius’ more immediate prospects have been largely discounted. Genius shares surged from around 35 cents to nearly $12 over the course of a month as investors rode the company’s streaming plans aggressively higher. But the past several weeks of exiting has seen shares give back roughly 82% of those gains. The stock is now changing hands at just over $2.
The question going forward is whether shares of Genius make the case for a compelling investment today. Luke’s analysis suggests Genius could fall another 50% to $1 based on a conservative price modeling, which supports a valuation of around $200 million. It’s a warning.
As alluded to earlier, I’m a bit more upbeat about the stock’s prospects, even if, GNUS stock ultimately remains in the process of “a painful normalization” towards fair value.
Technically, the other bottom-line revealed on the price chart shows Genius’ narrowing Bollinger Bands as shares approach an oversold test of the lower support level. Along with the hard decline in the stock, the case for a low to develop near current prices increases in our estimation.
Lastly and strategically, even if a bottom fails to form near $2, in this strategist’s view, the October $2.5 buy-write for $1.50 or equivalent short put for $1 per contract still allow for a respectable margin of error to afford GNUS stock as an actionable idea today.
Investment accounts under Christopher Tyler’s management do not currently own positions in securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.