GNUS Stock – Genius Brands International Stock Is Believed To Be Significantly Overvalued
– By GF Value
The stock of Genius Brands International (NAS:GNUS, 30-year Financials) is estimated to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus’ estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $1.8 per share and the market cap of $541.4 million, Genius Brands International stock gives every indication of being significantly overvalued. GF Value for Genius Brands International is shown in the chart below.
Because Genius Brands International is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company’s financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company’s financial strength. Genius Brands International has a cash-to-debt ratio of 37.32, which ranks better than 84% of the companies in the industry of Media – Diversified. Based on this, GuruFocus ranks Genius Brands International’s financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Genius Brands International over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Genius Brands International has been profitable 0 years over the past 10 years. During the past 12 months, the company had revenues of $3.2 million and loss of $5.201 a share. Its operating margin of -710.93% in the bottom 10% of the companies in the industry of Media – Diversified. Overall, GuruFocus ranks Genius Brands International’s profitability as poor. This is the revenue and net income of Genius Brands International over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Genius Brands International is -73.1%, which ranks in the bottom 10% of the companies in the industry of Media – Diversified. The 3-year average EBITDA growth rate is -96.6%, which ranks in the bottom 10% of the companies in the industry of Media – Diversified.
One can also evaluate a company’s profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Genius Brands International’s ROIC is -65.00 while its WACC came in at 13.09. The historical ROIC vs WACC comparison of Genius Brands International is shown below:
In closing, the stock of Genius Brands International (NAS:GNUS, 30-year Financials) is estimated to be significantly overvalued. The company’s financial condition is fair and its profitability is poor. Its growth ranks in the bottom 10% of the companies in the industry of Media – Diversified. To learn more about Genius Brands International stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.