Penny stocks are inherently risky. Genius Brands International (NASDAQ:GNUS) is no exception. However, 2020 has been very kind to speculators who have dabbled in GNUS stock. In the last six months, the stock has gone from trading at 30 cents to trading above $7. As I’m writing this, the stock is below $1.50.
Spending a few minutes on Stocktwits, I can see that investors have a complicated relationship with GNUS stock. Some see it as a pump-and-dump stock. Others are buying into the long-term narrative for the stock.
Ultimately that’s for you to decide, but I’ll offer up a couple of reasons why I would stay away.
Remote Learning May Actually Feel Like School
The bullish case for GNUS stock centers on kids being kept inside this fall with virtual learning. The thinking is that parents will be desperate to keep their children entertained. And Genius Brands, through its app, The Kartoon Channel, is a digital distraction that is educational.
I offer two counterarguments. First, there may be more in-person learning than was first thought. A study by Burbio does forecast that 52% of students will be studying remotely this fall. But the study also cited that 25% would attend every day (at least to start). The remainder would have some hybrid model.
The glass half empty person says that nearly 75% of students will have part- or full-time virtual learning. The glass half full crowd will say that nearly 50% will attend school in-person some of the time.
I live in a school district that is giving parents the option to send their children to school full-time or to have the children access remote learning full time. My daughter doesn’t start for a couple of weeks, but the vibe she’s getting is that a high percentage of her classmates will attend in person.
But here’s my second counterargument. Virtual learning was done on the fly in March and April. And it was, in my experience, inadequate. But I understood the limitations being dealt with. There’s little excuse for that to be the case this time. And I say that as someone who has educators in my family.
Although my daughter will attend in person as long as that option is available, the remote learning is being done by a third-party academy. It will have far more rigor than the patched together solution in the fall.
The overriding point is that I’m not expecting remote learners to be as idle as they were.
Kids Are a Fickle Target
One of the problems I have with Genius Brands is in the marketing. At the onset of the pandemic, some investors were giving Genius the moniker “the Disney (NYSE:DIS) killer.” That’s a bold statement, particularly when the company is competing not just with other companies, but for the attention of the target they’re trying to reach.
Kids know the difference between being educated and being entertained. Disney doesn’t pretend to be the former. It is unapologetically the latter. Genius Brands hopes to turn kids on to the joy of learning through The Kartoon Channel. That’s a tough sell. Sesame Street has stood the test of time. But most other educational shows have a shelf life that is only slightly longer than a child’s attention span.
Larry Ramer gave credence to this point in a recent article. Ramer cited a Hindenburg Research report that shows Nick Jr. is cutting the number of times it broadcasts Genius Brand’s signature show Rainbow Rangers. And to be clear, the show is not airing in prime time.
The Bottom Line on GNUS Stock
I’ve said it before and it bears repeating. I’m an investor, not a trader. And in my mind, there’s a world of difference. This is particularly true if you’re delving into the world of speculative trading. I wouldn’t want to devote my time and energy into trading a stock daily or weekly to make my bones.
But there are those that love the risk and reward that comes from speculative trading. As my colleague Josh Enomoto wrote recently, “As we’re witnessing in this new normal, an investment doesn’t necessarily have to make sense to be profitable.”
For those speculative traders, GNUS stock may have something to offer. But the stock has a lot to prove to me.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019. As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.