Few companies have had such a wild ride in as short a period of time as Genius Brands (NASDAQ:GNUS). Not too long ago, GNUS stock was stuck squarely in sub-dollar territory.
Then, a dramatic lift in May followed by a hearty performance in June saw share prices briefly touch double-digit territory. But just as quickly, Genius fell back toward penny stock pricing.
Given the volatility, conservative investors may be tempted to avoid the kids hybrid education/entertainment media company altogether. And frankly, if you can’t handle the heat, you really should step out of this kitchen.
Having said that, the allure of GNUS stock is that because it’s backed by tremendous enthusiasm, the littlest bit of good news could potentially get shares running again.
Take for example the results of the Fisher-Price deal announced earlier this week. A division of Mattel (NASDAQ:MAT), Fisher-Price manufactured Genius Brands’ first set of toys, modeled after the company’s popular Rainbow Rangers characters. Further, the toys are now available through Walmart (NASDAQ:WMT) and Amazon (NASDAQ:AMZN).
That was good enough to kickstart GNUS stock, which was previously suffering from extended volatility. In addition, the law of small numbers provides strong profit opportunities for those daring enough to speculate.
Fundamentally, the narrative for Genius Brands appears very favorable, especially in light of the novel coronavirus. With uncertainty hanging over school reopening, many kid students may be left at home, rotting their brains in front of the TV or nowadays, mobile devices. To mitigate this impact, parents can at least provide quality cartoons with both educational and entertainment value.
Still, many prospective buyers feel the storyline is disjointed.
The Fine Print Could Dissuade Buyers from GNUS Stock
Again, on the surface, the case for GNUS stock seems rock-solid. You have the “infotainment” business, which is a hot segment. Plus, Genius Brands enjoys the rights to use some of comic book legend’s Stan Lee’s characters. And now, the company has its own toys out to market.
What could go wrong? Well, the company lacks longer-term credibility. I’m not saying that to be rude. Just look at how quickly GNUS stock collapsed in June and July.
Specifically, when you drill into the details for Genius Brands, some concerns stand out. First, the move to toys may not pan out over the long haul. As I explained for Mattel, the birth rate has significantly declined in the U.S. Therefore, it’s hard to justify the idea of MAT stock soaring toward prior peaks it carved out when birth rates were much higher.
Fewer kids logically translate to lower demand for toys.
Second, I’m not entirely convinced that certain school districts not reopening for the fall semester is a positive for GNUS stock. Sure, you have greater opportunities for parents to advantage Genius’ products and services. At the same time, I believe parents are seriously worried about their children spending too much time indoors and being overly exposed to digital stimuli.
Finally, the Stan Lee catalyst is overhyped. While Genius certainly advertises the iconic name on its website, these characters were envisioned outside of the compelling Marvel Comics universe. So, mentioning Stan Lee is only going to attract investors on a superficial level.
If they drill into the details, they’ll recognize that the kids don’t care about Stan Lee, they care about Spider-Man. And this discovery probably contributed to the wildness of the share price.
But Don’t Dump Genius Brands Shares Yet
Given that the reality is far removed from the used-car salesman’s pitch, it’s tempting to go short Genius Brands stock. But I think that would be a rash move. As we’re witnessing in this new normal, an investment doesn’t necessarily have to make sense to be profitable.
Of course, here I have to mention Robinhood, the trading platform that so many young investors find appealing and intuitive. I have nothing against this surge in new investors; in fact, I’m a big fan. But it’s fair to point out that because so many newbie investors have come online, Wall Street has become a self-fulfilling prophesy.
Right now, if you like any stock with a social media following, chances are, many others have the same opinion. But ultimately, how you become profitable doesn’t matter, so long as you are. If you do decide to gamble on GNUS stock, just know that’s exactly what it is, a gamble.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. As of this writing, he did not hold a position in any of the aforementioned securities.