When an investment tanks by 69% in two short months, with no brief rebound in between, it either represents one incredible buying opportunity or second-place finisher to stuffing cash in a mattress. With Genius Brands International (NASDAQ:GNUS), let’s be clear: It’s impossible to dismiss the latter as a possibility. The company has been hammered by bad news lately that has thrown GNUS stock into a swan dive, including one class action investor lawsuit, followed by another.
But could it really be that bad to sway an investor from, say, using some disposable income to buy 100 shares at $1.10 each? For starters, Genius’ stock did hit $7.93 as recently as June 3. If it could recover even half its lost ground, then the investor who rolls the dice today could see their investment triple or quadruple.
Consider that billionaire Warren Buffett wouldn’t exactly dismiss such a thought outright. One of Buffett’s most famous investing philosophies is this: “The best thing that happens to us is when a great company gets into temporary trouble … We want to buy them when they’re on the operating table.”
To extend Buffett’s metaphor, the question revolves around whether Genius Brands International is being rolled into the operating room for a routine hernia fix or quadruple-bypass surgery.
Counting on Quarterly Recovery
For a time, it appeared as though such an assessment wouldn’t be necessary. The early June peak of GNUS in part reflected investor exuberance over how it would fare during the novel coronavirus. The company—which produces videos, music and books for kids, and includes the Kartoon Channel—looked to benefit from Covid-19 forcing kids to stay inside.
But hunches are one thing, quarterly reports another—and boy, was Q2 2020 a sad one. GNUS reported a net loss of $4.88 per share, compared with a 16 cent loss in Q2 2019. That’s a 30-fold increase, year over year. Give that kind of performance, it behooves the wise investor to hold out for the Q3 report, which will hit in October.
Here’s the thing: That report need not necessarily reflect sterling performance or even evidence of a turnaround. If the company can show it has at least stanched the bleeding, and addressed the concerns of disgruntled shareholders, then an argument could be made that GNUS stock has already hit its bottom and set to fight its way back. In that case, the shareholder’s golden rule of “buy low” would more than apply here.
“Ah!” says the Ambitious Investor. “If it’s all about ‘buy low,’ why not ‘buy now’?”
By George … not so fast.
GNUS Stock and an Analyst Audience of One
For starters, any investment decision based on a hunch is a bet, nothing more. Dumb investors read tea leaves; smart ones read analyst ratings. But where GNUS stock is concerned, that information is very tough to come by. Granted, the one analyst surveyed by WSJ Markets calls GNUS stock a “buy” and even sets a tasty target price of $4.50 per share, which would mark that price quadrupling scenario we discussed earlier.
But as these things go, analyst consensus matters. In the case of Netflix (NASDAQ:NFLX), 41 analysts weigh in—with opinions all over the spectrum—to create an overall rating of “buy.” Now let’s put our investor-math brains to work: That’s 40 more analysts following NFLX than GNUS. Huh.
So in search of more numbers, let’s go to an unusual source: the lawsuit filed by Bronstein, Gewirtz & Grossman, LLC. It states that on July 6, Genius Brands announced a joint venture with POW! Entertainment “regarding the intellectual property Stan Lee created following his tenure at Marvel Entertainment.” You’d think that would be great news but immediately afterwards, “Genius Brands’ stock dropped [more than] 25% to close at $2.66.”
In Hype Versus Hope, No Clear Winner
What happened? Apparently, the deal was a major disappointment to investors and speculators who imagined something far more lucrative that involved a multi-billion-dollar enterprise. The incendiary phrase, at least where the lawsuits are concerned, was “exciting business development,” used in a July 2 company press release announcing a conference call by Chairman and CEO Andy Heyward.
America being the land of free speech, you might wonder what’s wrong with that. Well, speech isn’t exactly free if it misleads investors who go broke. For his own part, Heyward could be guilty (in the non-legal sense) of Tinsel Town hyperbole surrounding the POW! Entertainment Deal. He crowed: “In all of Hollywood, there is no greater prize. This is the Holy Grail.”
If that line isn’t tailor-made for page one of some comic book saga, it’s hard to imagine a better one. At the very least, companies with a $241 million market cap should provide entertainment through their products, not their press releases. POW! Entertainment represents the output of Lee in his post-Marvel Comics years.
Now supposing you believe Hayward’s assessment—which could prove itself in time—the results won’t impact the company’s bottom line for years, unless Lee-themed properties go into production immediately and with industry fanfare.
Not to be the bad guy in this pseudo-superpower stock saga, but talk is cheap. Maybe even penny stock cheap. A buck and a dime per share isn’t far off, you know. If you’re going to throw anything after GNUS stock for now, make sure it’s chump change.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.