Investors Shouldn’t Pull the Trigger on Genius Brands Stock Yet

Genius Brands (NASDAQ:GNUS) and GNUS stock are intriguing and have a great deal of potential. But given the stock’s still-stratospheric valuation and the lack of clear-cut success by the company, I think that it’s not yet a good time to buy the shares.

A  Great Deal of Potential

Genius Brands’ app, The Kartoon Channel,  received primarily positive reviews on Amazon (NASDAQ:AMZN). Specifically, as of August 6, there were 1,163 positive reviews of the app on Amazon and only nine critical reviews. Further, a majority of the critical reviews seem to focus on technical problems with the app or complaints about its cost, rather than issues with its content.

Conversely, a high number of the positive reviewers raved about the app’s content, with one reviewer calling it a “disneyPlus Killer” and another writing “Is 37 years old too old? I love it- so do the kids.” Another simply wrote, “the best.”

Also positive for GBUS stock is the fact that the company’s flagship show, Rainbow Rangers, has been distributed to many countries. Among the nations in which the show will be broadcast are China, Portugal, Israel, Australia, New Zealand, and Poland.  Additionally, Nickelodeon Latin America has bought the regional rights to the show.

Top Talent and Impressive Partnerships

Moreover, Genius has recruited top-notch creative talent, including the director of The Lion King, a co-writer of Frozen, a bestselling author,  ” former Fox Kids Networks Worldwide president Margaret Loeschm and former Walt Disney (NYSE: DIS) television segment president David Neuman.” Other positive signs for GNUS stock are the company’s partnership with Mattel (NASDAQ:MAT), and the fact that ” toys will be sold on Amazon and in Walmart‘s (NYSE:WMT) physical and digital retail stores. ”

Also positive are Genius’ purchase of characters created by Stan Lee after his Marvel days and Genius’ assertion that Rainbow Rangers is  “rooted in themes of empowerment, diversity, friendship, and sustainability.” The latter characteristics should be very appealing to Generation Y and millenial parents.

In general, there are many signs that Genius’ shows are very appealing to children and their parents. As a result, the company could indeed accomplish its CEO’s dream of becoming the “Netflix for kids” and sell a tremendous amount of toys as well.

Reasons to Be Cautious

On June 5, Hindenburg Research published a negative report on GNUS stock. The firm noted that “Rainbow Rangers aired 26 times per week when it first debuted on {the} Nick Jr. {network} in 2019. Now, the show only airs ~9 times per week, at 3:49am EST during weekdays and Saturdays and twice Sunday mornings between 6am and 7am,”

Assuming the statement is true, the fact that a major cable network drastically reduced the number of times that Genius’ top show is broadcast and is airing it so early is certainly negative. It’s possible that Nick Jr. acquired less expensive shows or has become more interested in shows that appeal to many boys and girls (Rainbow Rangers seems to be targeted primarily to girls). Still, the network’s decisions don’t inspire confidence in GNUS stock.

Further, the stock’s valuation, although much more reasonable after the shares’ recent huge decline, is still extremely high.  Specifically, the shares are trading for about 50 times Genius’ 2019 revenue.

The Bottom Line on GNUS Stock

Despite Genius’ huge potential, I can’t recommend pulling the trigger on the shares, given Nick Jr’s decisions about Rainbow Rangers and the stock’s stratospheric valuation.

I think that investors should watch GNUS stock from the sidelines for now. If the shares drop sharply again or more signs emerge that the company will be hugely successful, risk-tolerant investors could consider buying a small amount of the stock.

As of this writing, the author did not own any of the aforementioned stock. 


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