NEW YORK (TheStreet) -- When good isn't good enough, investors run scared. That's what happened to Lions Gate (LGF) on Monday, after box office numbers for Catching Fire failed to exceed sky-high expectations. Shares plunged 10.5% to $30.23, after Friday's 3.8% rally. Trading volume was six times more than usual with 12 million shares changing hands during the trading session.
Catching Fire, Lions Gate's sequel to 2012's The Hunger Games, pulled in $161.1 million over its debut weekend, the biggest November debut in history and Lions Gate's most profitable box office open ever. Worldwide, the film garnered $307.7 million in ticket sales, according to Reuters. While the movie fell short of Iron Man 3's record-holding $174 million box office open, the film smashed Disney's (DIS) Delivery Man which had a wide domestic release over the weekend as well and took in $8.2 million.
However, Catching Fire's impressive box office haul wasn't enough to meet analysts' lofty projections. According to Rentrak data, it was anticipated the film would pull $166 million over the weekend. The sequel has exceeded the original's opening weekend takings of $152.5 million in March last year.
This isn't the end of the Vancouver-based studio's strong run. The final two films, The Hunger Games: Mockingjay - Part 1 and The Hunger Games: Mockingjay - Part 2, the material of which is derived from the third book in the series, will be released in November 2014 and 2015, respectively.
The studio has also taken on the rights to a separate dystopian three-part young-adult franchise, Divergent. The first installment in the Veronica Roth series is slated for a March 2014 release.
TheStreet Ratings team rates Lions Gate Entertainment as a Buy with a ratings score of B. The team has this to say about their recommendation:
"We rate Lions Gate Entertainment (LGF) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its notable return on equity, good cash flow from operations, solid stock price performance and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Media industry and the overall market, Lions Gate Entertainment's return on equity significantly exceeds that of both the industry average and the S&P 500.
- Net operating cash flow has significantly increased by 1675% to $139.86 million when compared to the same quarter last year. In addition, Lions Gate Entertainment has also vastly surpassed the industry average cash flow growth rate of 13.65%.
- Compared to its closing price of one year ago, LGF's share price has jumped by 124.80%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
- 47.51% is the gross profit margin for Lions Gate Entertainment which we consider to be strong. Regardless of LGF's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 0.10% trails the industry average.
- Lions Gate Entertainment 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. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, Lions Gate Entertainment turned its bottom line around by earning $1.57 a share vs. -30 cents a share in the prior year.
- You can view the full analysis from the report here: LGF Ratings Report