With shares of DreamWorks Animation (NASDAQ:DWA) trading at around $16.65 is DWA an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
The tall oak trees that surround you sag at the tops, their branches and leaves forming a depressed canopy that disallows even the slightest trickle of sunlight. The heavy breathing from behind you belongs to the grim reaper, but in addition to a scythe in one hand, he holds a bag of freshly removed hearts in his other hand. His eyes are larger than what you have seen on TV and in movies. His eye sockets are alien-like, but they’re filled with pools of splashing blood instead of grey eyeballs. His breath is as cold as death. It’s a cold that has its own way of indicating that your end is near once it reaches the back of your neck. Just ahead at the edge of the forest is a Caribbean beach with a bikini-clad blonde extending a cocktail in one hand and showing you a lounge chair with her other hand. You can only assume she’s prepared to offer a massage so you can forget all your worries. While that dream is on the horizon, you know you will never make it there. The stench of rotting corpses on the forest floor around you is a forbidding reminder of your future. You’re ready for this teasing nightmare to end and to deal with the consequences, but it never ends. It’s a constant offering of false hope and terror in which there is no escape. It’s your personal purgatory, and it’s a life that you will live for eternity.
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That’s what it has been like owning DreamWorks Animation over the past few years. It has simply been a nightmare. The days of the average DreamWorks Animation movie grossing $150 million seem to be over. The latest release, Rise of the Guardians, has only grossed a little over $40 million so far. Considering the cost to make the film was $145 million, that’s quite a flop. DreamWorks Animation has released 23 films to date, but it has been a while since we have seen winners like How to Train Your Dragon, Kung Fu Panda, or Antz. DreamWorks Animation will always have its loyal followers that watch every release, but it takes a lot more than just loyal followers to make a nice profit.
Let’s take a look at some numbers to see if we can find any hints for what the future holds.