Shareholders in Genius Brands International (NASDAQ:GNUS) stock have had a rollercoaster 12 months. In April 2020, GNUS stock saw a 52-week low at 22 cents, only to hit a multi-year high of $11.73 the following June. Now, the shares are hovering around $1.80.
Given the wild price swings, potential investors now wonder whether April 2021 could be an opportune time to buy into the share price.
Unless your portfolio can absorb a high risk/ high return asset, you may want to hold off that purchase. Here’s why.
Genius Brands Behind GNUS Stock
The Beverly Hills, California-based children’s media company creates and licenses media content. GNUS stock is fueled by a wide range of content, which focuses on bringing a purpose to the content as well as entertainment.
For instance, it has an upcoming program based around former NBA superstar Shaquille O’Neal. It also has the computer-animated television series Rainbow Rangers on Nick Jr., which is owned by ViacomCBS (NASDAQ:VIAC). Llama Llama, a British-American children’s animated web television series, is streamed over Netflix (NASDAQ:NFLX).
Management also announced a collaboration between Genius Brands and Marvel Studios, which is owned by Disney (NYSE:DIS). GNUS has a license to use the likeness of the late Stan Lee (the founder of Marvel), and will create content based on the Stan Lee Universe. This is planned for 2022, timed around what would have been the creative legend’s 100th birthday. The Stan Lee Universe will feature the likes of Arnold Schwarzenegger and other celebrities.
The company recently released its own two channels. These are the “Kartoon Channel” and “Kartoon Classroom” which are available in over 100 million U.S. television households via a broad range of distribution platforms, including Amazon (NASDAQ:AMZN) Prime, Apple (NASDAQ:AAPL) TV+ and Roku (NASDAQ:ROKU).
Adding to the Genius roster will be the introduction of gaming-themed characters and programs from Roblox (NYSE:RLBX) to the Kartoon Channel. This new show will be exclusive to Genius Brands and will air starting in June. “Roblox has become a phenomenon that has captured the attention of children across the globe, and we are thrilled to be working with (Austin, Texas media company) Tankee to develop and share new episodes in order to meet the growing demand from viewers,” said Kartoon Channel general manager Jon Ollwerther.
GNUS stock investors expect these collaborations will help the top and bottom lines and support the share price.
Small Cap, Big Potential
With a market capitalization of around $540 million, Genius Brands International is a small cap stock. In his annual shareholder letter last month, CEO Andy Heyward cautioned investors that company is in the investing stage, as it looks to build catalogues, brands, broadcasting infrastructure and a bigger workforce.
He advised that revenue and earnings will not be the main focus for now. Instead, management will be concentrating on building cash. “If we use our cash smartly as we intend, then we believe revenues and earnings will follow,” he stated.
The company currently has $140 million in cash and zero debt on the books. It also has an additional approximately 40 million warrants, giving holders could the opportunity to buy GNUS stock at $2.37 a share. If and when those warrants are exercised in full, management would have almost $100 million more in cash to work with. However, the stock price is currently below $2.
A closer inspection of the most recent 10-K (annual report) filed with the SEC for the the fiscal year ended Dec. 31, 2020 shows the company generated net revenues of $2.48 million and incurred a net loss of $401.67 million. A year ago, the metrics had been revenues of $5.9 million and a net loss of $11.48 million.
Management said, “We have a history of operating losses and incurred net losses in each fiscal quarter since our inception… These losses, among other things, have had an adverse effect on our results of operations, financial condition, stockholders’ equity, net current assets and working capital. We will need to generate additional revenue and/or reduce costs to achieve profitability.”
Without restating the obvious, these words should be enough to alert potential investors to the inherent risks in buying GNUS stock. The current price-to-sales ratio for the stock stands at 103.88, a valuation level that is not likely possible to sustain. The 10-K clearly states that Genius Brands will need additional working capital in the form of debt of equity financing. Either option is likely to have an adverse effect on GNUS shares.
The Bottom Line on GNUS Stock
Recently announced business collaborations as well as the current media content are good news for GNUS stock investors — at least on paper. Genius Brands International is reaching out to grow the audience. However, these steps are not yet generating enough revenue to justify investing in the business for the long-run.
Heyward recently discussed his friendship with Warren Buffett and the importance of investing in yourself, which is what he plans to do in the future. The lessons he has learnt from Buffet are featured in an animated series they have centered around Buffet, titled Secret Millionaires Club.
This ethos to invest in oneself over the next few years will be good for the brand, but may not be seen in the share price for a while. Once the company has expanded and revenues start to increase, GNUS stock could be a company to keep an eye on.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.