A leader in digital entertainment streaming, Cinedigm Corp. (CIDM) operates as a distributor and aggregator of independent movie, television, and other short-form content in the United States, Canada, and New Zealand. The stock has gained 25.2% over the past three months, driven by the company’s recent deal with All3Media International to launch The Only Way Is Essex (TOWIE) channel and its plans to expand its exclusive NFT offerings.

However, closing Friday’s trading session at $1.99, CIDM’s stock is trading 14.6% below its 52-week high of $2.33. In addition, the company has recently received a notice from Nasdaq indicating its non-compliance with the Nasdaq Listing Rule. Moreover, even though CIDM's investment in the leading entertainment platforms has attracted investors' interest, weakening NFT enthusiasm could be concerning.

Here is what could influence CIDM’s performance in the upcoming months:

Risks Associated with the NFT space

Non-fungible tokens are digital assets that represent various distinct tangible and intangible goods, such as collectible sports cards, virtual real estate, and even digital sneakers. However, there are several risks associated with it as it suffers from massive volatility.

Confusing marketing, the whims of wealthy collectors, and the possibility of fraudulent players might add to investors' risks. Since the longer-term potential of digital collectibles remains uncertain, several institutional investors are naturally skeptical.

Although CIDM has been investing heavily to expand its volume of NFT releases, the high level of uncertainty surrounding the future of digital collectibles could hamper its growth.

Notice of Deficiency

Last month, CIDM received a notice from Nasdaq indicating that it was no longer in compliance with Nasdaq Listing Rule because of failure to file its Form 10-Q for the quarter that ended June 30, 2021, within the stipulated time, with the Securities and Exchange Commission. Although the notice does not immediately result in delisting CIDM from the Nasdaq Global Market, it could raise investors’ concern about the stock if it fails to submit a plan to regain compliance within 60 calendar days from the day of notice.

Weak Financials

CIDM’s trailing-12-months operating loss came in at $13.47 million. Its trailing-12-months net loss amounted to $63.2 million over this period. In addition, the company reported a negative trailing-12-months interest income of $4.1 million.

Its trailing-12-month gross profit margin of 48.8% is 3.4% lower than the industry average of 50.5%. Also, its EBITDA margin, ROA, and net income margin are negative 20.9%, 83.3%, and 199.9%, respectively. Furthermore, CIDM’s asset turnover ratio of 0.3% is 25.7% lower than the industry average of 0.5%.

Stretched Valuation

In terms of forward EV/Sales, CIDM is currently trading at 6.63x, 150.7% higher than the industry average of 2.64x. In addition, its forward Price/Sales of 6.8x is 280.1% higher than the industry average of 1.76x. Furthermore, the stock’s trailing-12-month Price/Book ratio of 24.17 is 837% higher than the industry average of 2.58.

Unfavorable POWR Ratings

CIDM has an overall grade of D, which equates to a Sell rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

CIDM has an F grade for Value and Stability. This is justified given the stock’s higher than industry valuation multiples and a relatively high beta value of 1.77.

Also, the stock has a D grade for Quality, which is consistent with the stock’s negative profit margins.

Of the eight stocks in the F-rated Entertainment – Movies/Studios industry, CIDM is ranked #6.

Beyond what I’ve stated above, we provide grades for Growth, Momentum, and Sentiment. Get all of CIDM ratings here.

Bottom Line

While CIDM has witnessed significant momentum over the past few weeks due to its strategic partnership to launch a new channel and its plans to raise the volume of NFT releases, its weak fundamentals and poor profitability might lead to the stock to see a pullback in the near term. So, the stock is best avoided now.

How Does Cinedigm Corp. (CIDM) Stack Up Against its Peers?

CIDM has an overall grade of D, which equates to a Sell rating. Unfortunately, there are no stocks in the Entertainment - Movies/Studios industry with an A (Strong Buy) or B (Buy) rating.

CIDM shares were trading at $1.97 per share on Tuesday morning, down $0.02 (-1.01%). Year-to-date, CIDM has gained 205.52%, versus a 21.43% rise in the benchmark S&P 500 index during the same period.

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.

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