Content and brand management company Genius Brands International, Inc. (GNUS - Get Rating) in Beverly Hills, Calif., creates and licenses multimedia content for global toddlers to tweens. The company’s offerings include animated series that include Rainbow Rangers and Llama Llama. The company serves various customers and partners, including broadcasters, consumer products licensees, manufacturers, and retailers.

On April 7, GNUS announced that it had completed the acquisition of WOW! Unlimited Media Inc. The acquisition is expected to provide GNUS with financial benefits. Andy Heyward, Chairman and Chief Executive Officer of GNUS, said, “The acquisition is expected to provide a number of immediate benefits, as it is expected to result in increased revenues and is expected to be accretive. The acquisition is also expected to provide synergies with our existing business, as well as our growing global channel system.”

GNUS’ stock has declined 49.3% in price over the past year and 12.7% year-to-date. However, the stock has gained 9.2% over the past month to close yesterday’s trading session at $0.92.

Here is what could shape GNUS’ performance in the near term.

Bleak Trailing 12-month Financials

GNUS’ trailing 12-month net income, EBITDA, and operating income stood at a negative $103.48 million, 33.49 million, and 33.98 million, respectively.

Also, its trailing 12-month net operating cash flow and levered free cash flow came in at negative 18.33 million and 3.82 million, respectively.

Stretched Valuations

In terms of its trailing 12-month EV/Sales, GNUS is currently trading at 26.31x, which is 1,983.3% higher than the 1.26x industry average. The stock’s 39.45 trailing 12-month Price/Sales multiple is 4,042.9% higher than the 0.95 industry average.

Bleak Profit Margins

GNUS’ Its negative 57.89% trailing 12-month levered FCF margin is substantially lower than the 4.70% industry average. GNUS’ negative 89.55%, 17.86%, and 53.52% respective trailing 12-month ROE, ROTC, and ROA compare to their respective industry averages of 17.20%, 7.71%, and 6.11%.

The stock’s 0.05% trailing 12-month asset turnover ratio is 95.41% lower than the 1.05% industry average.

POWR Ratings Reflect Bleak Prospects

GNUS’ POWR Ratings reflect this bleak outlook. The stock has an overall F rating, which equates to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

GNUS has a Value and Quality grade of F, which is in sync with its stretched valuations and bleak profit margins.

The stock has an F grade for Stability. Its 1.82 five-year monthly beta justifies this grade.

It is ranked last in the F-rated, 20-stock Entertainment – Media Producers industry.

Click here to see the additional POWR Ratings for GNUS (Growth, Momentum, and Sentiment).

View all the top stocks in the Entertainment – Media Producers industry here.

Bottom Line

GNUS expects to benefit from its recent acquisition. However, its bleak trailing 12-month financials and negative ROE are concerning. Moreover, the stock looks overvalued at its current price level. Therefore, I think the stock might be best avoided.

How Does Genius Brands International, Inc. (GNUS) Stack Up Against its Peers?

While GNUS has an overall POWR Rating of F, one might consider looking at its industry peers, News Corporation (NWSA - Get Rating) and AMC Networks Inc. (AMCX - Get Rating), which have an overall B (Buy) rating.

GNUS shares were trading at $0.90 per share on Thursday afternoon, down $0.02 (-1.80%). Year-to-date, GNUS has declined -14.29%, versus a -5.48% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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