With its stock price plummeting and class action lawsuits mounting, Genius Brands (GNUS 1.72%) is starting to fight back. The creator of animated content for children issued a press release on Friday, calling out the recent wave of litigation as a distraction that will force it to dedicate time and resources to the legal fisticuffs instead of focusing on growing its business.
"The lawsuit is meritless and we will vigorously defend ourselves against this hollow accusation," Genius Brands responds in Friday morning's press release.
Naturally, Genius Brands is right to defend its honor. One wouldn't expect anything less. However, with the stock plummeting after a brief spike in early June, it's going to be a long and challenging road back for one of Wall Street's more volatile investments in recent months.
Image source: Getty Images.
Animated response
Many of the class action investigations are accusing the company of securities fraud or other unlawful business practices, largely stemming from overhyping its position in the industry and the significance of announced developments.
Even Genius Brands' Friday press release defending itself seems to be contributing to the misrepresentation. It concludes by calling itself a "leading global kids media company" in its company description, a stretch for a company that hasn't generated more than $6 million in annual revenue since 2012 -- and with its top-line results declining through the first half of this year relative to the same six months a year earlier.
Genius Brands talks a big game, but it's a small player -- at least for now. It has captured the imagination of investors on Robinhood, making it one of the 100 most widely owned stocks on the trading platform despite its thin financial results and uninspiring past. While it has had some minor hits along the way, including Rainbow Rangers, there's no reason to believe that the recent launch of Kartoon Channel! and its partnership with Stan Lee's POW! Entertainment will deliver material results in a very crowded market. Fears of Genius Brands flooding the market with more float after its initial June surge didn't help. Building up a major upcoming announcement in early July that failed to live up to expectations was another pressure point with investors.
"A thin float and buzzy announcements may have drawn in young speculators chasing low-priced stocks, but that's not the way the market or Hollywood works," I argued last month. Genius Brands is now attracting the wrong kind of attention to its hype machine.
The good news here is that class action lawsuits are rarely fatal. Genius Brands has time to develop into the "leading" media stock it bills itself as these days. It just needs to tone down the hype before more speculators cosplaying as investors get hurt.
