Grom Social Enterprises, Inc. (GROM - Get Rating) in Boca Raton, Fla., works as a media, technology, and entertainment corporation focused on delivering content in the United States. The company runs a social media platform for children under 13. It also creates animated films and television shows and offers online filtering services to schools and government organizations.

The stock has gained 6% in price over the past month owing to GROM’s Curiosity Ink Medi’s partnership with iconic comedian Maz Jobrani. However, its shares have dipped 63.7% over the past year and 41.2% over the past three months to close yesterday’s trading session at $1.23. In addition, it recently hit its 52-week low of $0.79 on March 8, 2022.

Given the company’s unimpressive bottom-line performance and low-profit margins, GROM’s  near-term prospects look uncertain.

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

Poor Bottom line Performance

GROM’s sales increased 5.2% year-over-year to $1.51 million for the three months ended Sept. 30, 2021. However, its operating loss increased 96.9% from its year-ago value to $2.15 million. Its net loss grew 4% from the prior-year quarter to $2.31 million, while its EPS came in at $0.21 over this period. In addition, its net cash used in operating activities was  $537 million for the nine months ended Sept. 30, 2021.

Poor Profitability

GROM’s 39.9% trailing-12-months gross profit margin is 22% lower than the 51.2% industry average. Its 0.26% trailing-12-months asset turnover ratio is 41.1% lower than the 0.45% industry average. Also, its trailing-12-months ROA, net income margin, and ROC are negative 26.8%, 129.3%, and 15%, respectively.

POWR Ratings Reflect Uncertainty

GROM has an overall D rating, which equates to 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. GROM has an F grade Quality. The company’s poor profitability and financials are consistent with the Quality grade.

Among the 72 stocks in the F-rated Internet industry, GROM is ranked #60.

Beyond what I have stated above, one can view GROM ratings for Stability, Momentum, Growth, Value, and Sentiment here.

Bottom Line

While the company continues to make several strategic collaborations and operational advancements, its poor financial health and profitability could concern investors. In addition, the stock is currently trading below its 50-day and 200-day moving averages of $1.39 and $2.68, respectively, indicating bearish sentiment. Therefore, we believe the stock is best avoided now.

How Does Grom Social Enterprises Inc. (GROM) Stack Up Against its Peers?

While GROM has an overall D rating, one might want to consider its industry peers, trivago N.V. (TRVG - Get Rating), which has an overall A (Strong Buy) rating, and Yelp Inc. (YELP - Get Rating) and Travelzoo (TZOO - Get Rating), which have an overall B (Buy) rating.

Note that TRVG is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.

GROM shares fell $0.07 (-5.69%) in premarket trading Tuesday. Year-to-date, GROM has declined -35.56%, versus a -6.26% 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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