Not every trader is going to be familiar with kid-friendly entertainment provider Genius Brands International (NASDAQ:GNUS). If you’ve never seriously considered owning GNUS stock, I’d like to suggest that this is an ideal buy-and-hold type of asset.
Could Genius Brands be as big as Walt Disney (NYSE:DIS) someday? I’ll admit, that may be a pipe dream.
On the other hand, a recently issued letter to the shareholders indicates that Genius Brands plans to make aggressive moves and add to the company’s growing market share.
For all we know, Genius Brands might actually pose a major threat to Disney at some point. In the meantime, as we’ll discuss now, GNUS stock is surprisingly cheap.
A Closer Look at GNUS Stock
How cheap is it? It’s actually classified as a penny stock — defined by the U.S. Securities and Exchange Commission (SEC) as a stock that trades under $5 per share.
To be more specific, as of April 9, the shares were trading at $1.78. Yet, within the past 52 weeks, the stock has gone as high as $11.73.
A more recent peak occurred on March 24, 2021, when GNUS stock topped out at around $3. The share price then declined in late March and early April.
Now, in the interest of full disclosure, I must reveal an unsettling statistic. Namely, Genius Brands has trailing 12-month earnings per share of -$2.82.
And so, the per-share earnings are negative and the absolute value is greater than the share price itself.
That fact might be a deal breaker for some folks, and I understand that. Still, we may be able to find reasons to stay the course with GNUS stock.
Acquisition Warpath
Where would we find reasons to be bullish now? One great place to start is InvestorPlace contributor Mark R. Hake’s excellent article on Genius Brands’ transformation into a major studio with lots of cash.
When I took note of Genius Brands’ negative earnings per share, I was going to write a more cautious article. Hake’s reporting changed my mind, however.
He observed that Genius Brands, and particularly CEO Andy Heyward are on the “acquisition warpath.” Just as Disney gobbled up the Toy Story, Star Wars, Avengers and Marvel brands, Genius Brands intends to buy up “tentpole” assets.
What are tentpole assets? Heyward’s letter to the shareholders characterizes these assets as ones that “we anticipate being significant businesses and contributors for years to come.”
We can’t predict which tentpole assets Genius Brands might acquire later in the year. However, we do know that Heyward will insist that they should be “strategic” and “accretive” (producing profits rather than losses).
And, Heyward teased the shareholders by stating that a number of “potential acquisitions” have “met our criteria, and we are currently in dialogue with their ownership.”
Cash to Execute
Now, the skeptics and doubters might wonder if Genius Brands will be able to carry out these “potential acquisitions.” After all, this company isn’t nearly as big as Disney.
That’s true, but Heyward wants people to know that his company “a strong balance sheet with no debt.”
Moreover, according to the CEO, Genius Brands possesses “cash to execute on our operational and acquisition plans.”
Plus, as Hake points out, the company had $100 million and only $3.75 million in debt at the end of December.
Thus, while it will require plenty of capital to develop those tentpole assets, it appears that Genius Brands’ financial position is firm enough to allow the company to move forward with its ambitious acquisition strategy.
The Bottom Line
On a per-share basis, Genius Brands doesn’t appear to have particularly strong earnings. I can see how some investors might see this as a major problem.
But then, a closer look reveals a company that may be in a strong enough financial position to build the next Disney through strategic brand acquisitions.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
