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Why Cinedigm Corp (CIDM) Is Down on Thursday

Updated from 9:54 a.m. EST to include details of offering. 

NEW YORK (TheStreet) -- Cinedigm Corp (CIDM - Get Report) is slipping on Thursday after pricing a secondary offering of its Class A common stock.

By late morning, shares had taken off 13% to $2.75.

The digital media distributor said it intends to offer 10.2 million shares at $2.70 per share. The underwriter will have a 30-day option to purchase up to 1.53 million additional shares. 

New York-based Cinedigm plans to use the approximate $25.7 million in net proceeds for working capital, to fund potential future acquisitions and other general corporate purposes.

The offering is expected to close on March 25, pursuant to customary closing conditions.

Piper Jaffray & Co. will act as the sole book-running manager in the offering.

Cinedigm distributes its digital library of independent content to providers such as Apple  (AAPL) iTunes, Hulu, Amazon  (AMZN) and Netflix (NFLX).

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TheStreet Ratings team rates CINEDIGM CORP as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate CINEDIGM CORP (CIDM) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, weak operating cash flow and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Software industry. The net income has significantly decreased by 481.9% when compared to the same quarter one year ago, falling from -$1.78 million to -$10.38 million.
  • Net operating cash flow has decreased to $6.66 million or 24.03% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • CINEDIGM CORP has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past year. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, CINEDIGM CORP reported poor results of -$0.43 versus -$0.39 in the prior year. This year, the market expects an improvement in earnings (-$0.40 versus -$0.43).
  • The gross profit margin for CINEDIGM CORP is rather high; currently it is at 69.02%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, CIDM's net profit margin of -29.76% significantly underperformed when compared to the industry average.
  • Compared to its closing price of one year ago, CIDM's share price has jumped by 80.86%, exceeding the performance of the broader market during that same time frame. Regarding the future course of this stock, we feel that the risks involved in investing in CIDM do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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