Genius Brands International, Inc. (GNUS) is a prominent worldwide children’s media company that creates, produces, markets, and licenses branded children’s entertainment properties and consumer products for distribution in media and retail. In addition, it acts as a licensing agent for Llama Llama.

The stock has declined 25.3% in price over the past nine months and 11.5% over the past three months to close yesterday’s trading session at $1.39.

Though GNUS is working on various collaborative projects and major product launches to accelerate its growth, the company’s poor profitability and fragile financial strength could make investors anxious.

Here’s what could shape GNUS’ performance in the near term:

Acquisition can Drain Cash Reserves

This month, GNUS agreed to acquire WOW! Unlimited Media (WOW) for approximately CAD66 million ($53 million) through a cash and stock deal. GNUS intends to accelerate its financial growth with the acquisition and become the world’s foremost producer, broadcaster, and consumer product licensor of high-quality children’s entertainment.

However, the deal includes a significant cash component, which is expected to be a substantial cash outlay in the near-term, straining GNUS’ already weak balance sheet.

Lackluster Financials

For the second quarter ended June 30, 2021, GNUS’ operating expenses increased 237.6% year-over-year to $9.92 million. The company’s operating loss grew 218.7% from its year-ago value to $7.57 million, while its net loss came in at $7.38 million. The company’s loss per share amounted to $0.02 over this period. Its net cash used in operating activities surged 284.9% from the prior-year quarter to $8.97 million. In addition, its cash and cash equivalents declined 41.9% for the six months ended June 30, 2021, to $58.37 million.

Poor Profitability

Its trailing-12-month ROC, ROA, and levered FCF margin are negative 14.3%, 47.8%, and 78.6%, respectively. Its  0.04% asset turnover ratio  is 96.7% lower than the 1.1% industry average. Furthermore, GNUS’s trailing-12-month cash from operations stood at a negative $14.49 million compared to the $208.96 million industry average.

Unfavorable POWR Ratings

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

Our proprietary rating system also evaluates each stock based on eight distinct categories. GNUS has an F grade for Stability and a D for Quality. The stock’s 1.84 beta is in sync with the Stability grade. In addition, the company’s poor profitability justifies the Quality grade.

Of the 17 stocks in the D-rated Entertainment – Media Producers industry, GNUS is ranked #16.

Beyond what I’ve stated above, we have rated GNUS for Sentiment, Growth, Momentum, and Value. Get all GNUS ratings here.

Bottom Line

While GNUS has been striving to expand its business through various collaborative projects and acquisitions, the company’s unstable financials and poor profitability have caused its shares to decline significantly in price over the past months. In addition, the stock is currently trading below its 50-day and 200-day moving averages, indicating a downtrend. So, we believe the stock is best avoided now.

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

While GNUS has an overall POWR Rating of F, one might want to consider looking at its industry peers, News Corporation (NWSA), AMC Networks Inc. (AMCX), and MSG Networks Inc. (MSGN), having an overall B (Buy) rating.

GNUS shares were trading at $1.37 per share on Tuesday afternoon, down $0.02 (-1.44%). Year-to-date, GNUS has declined -0.72%, versus a 24.74% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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