On paper, the novel coronavirus should be the best thing ever for Genius Brands (NASDAQ:GNUS). While it may not be the most popular educational media firm, Genius packs star power, featuring shows such as Stan Lee’s Superhero Kindergarten, which stars Arnold Schwarzenegger as Captain Courage. The idea here is to educate children while also presenting entertaining content. And the concept has, at least temporarily, bolstered GNUS stock.
Obviously, this dynamic was most evident between the start of May to early June. During this crazy period, GNUS stock skyrocketed over 2,400%, rescuing shares from the dumpster and driving them to a respectable valuation. Further, this extreme rally fed into the strong implications of insider buying, as InvestorPlace’s Larry Ramer pointed out.
Of course, the biggest fundamental catalyst for GNUS stock was the coronavirus-fueled shutdowns. Suddenly, millions of people found themselves either working from home or depending on federally supported state unemployment benefits. But the worst impact hit parents. What should they do with their kids now that they’re home all the time?
Compounding matters was the timing. When the coronavirus first became serious, school kids were in their spring semester. If luck were on our side, this pandemic would have struck during the summer. But that’s not the kind of year we’re having.
Therefore, the crisis left parents of young children with few options. They couldn’t just let their kids mentally atrophy, not during their prime learning years. Basically, Genius Brands became an essential service during this time.
Yet after the euphoria, that is not what most investors believe.
GNUS Stock Presents a Perception Risk
While the outside fundamentals supported GNUS stock, observers quickly noted that shares plummeted following its dramatic rise. If the catalysts were so supportive of Genius Brands, why then did the market value hemorrhage?
For one thing, the star power element may not be as relevant anymore. As many have pointed out, Stan Lee is best known for his Marvel Comics universe. Beyond Marvel, it’s going to be extremely difficult to find kids in Genius’ core audience that care about Lee’s work. Please don’t misread this — I’m just saying in the context of young children, the name Stan Lee doesn’t really resonate.
As well, I think the Arnold Schwarzenegger catalyst doesn’t really provide that much firepower. Listen, I love the guy — he’s funny in his charming Austrian way. And he’s still got that charisma … for adults. The young kids that are watching him on Superhero Kindergarten? Frankly, they should not be watching most of Schwarzenegger’s top-rated films. Therefore, to the kids, Schwarzenegger must appear like a funny old man. Personable, yes, but not special.
Most importantly, I believe the majority of parents must have some reservation about depending too heavily on media and technology to teach their children. From a Wall Street Journal report in June, remote learning hasn’t really panned out for parents and kids.
To be fair, part of that could be due to the immediate rush and adoption of the platform. Just from common sense, rushing into something usually doesn’t provide positive outcomes.
But the overriding reality is that remote learning is difficult for those who are not accustomed to it. For instance, digital platforms prevent or heavily limit visual cues that teachers receive from their students. That’s not something artificial intelligence can pick up — you need a human teacher for that.
Genius May Still Be Overvalued
Another factor that gives me pause regarding GNUS stock is how shares responded in April. I get that the security tanked in March — virtually every stock did. But throughout most of the following month, shares were trading below 30 cents.
At that point, both federal and state government agencies were working overtime to keep society and the economy intact. Further, as I mentioned above, the shutdowns in theory should support GNUS stock. That it only did for a brief moment tells me that the enthusiasm was more a result of speculation than credible fundamentals.
Now, with shares seemingly finding support at around the $1 level, contrarians may be tempted to buy in. Nevertheless, if extreme speculation was the primary incentive to push a 30-cent stock to the moon, that implies GNUS may still be overvalued right now.
Of course, you don’t want to trash any opportunity in the new normal. If another bullish wave arrives, clearly, GNUS stock has the potential to rise. But if you are going to gamble, I’d go with what Ramer suggested: Wait until another haircut because Genius is too risky at this juncture.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.