GeekNet (GKNT) Stock Doubles Following $122 Million Acquisition by Hot Topic

NEW YORK (TheStreet) -- GeekNet (GKNT) shares are up 114.5% to $16.94 in trading today after the Fairfax, VA-based company was acquired by privately held teen apparel retailer Hot Topic for $122 million today.

GeekNet is the owner of retail website ThinkGeek which sells toys, gadgets and memorabilia related to pop culture movies and television shows as well as comics and other entertainment for "geeks". 

Hot Topic, which operates over 650 stores in North America, will pay about $17.50 per share for the company, more than double the stock's previous closing price of $7.90.

Hot Topic announced that the tender offer for the company will commence no later than June 19.

"We are pleased to have entered into this agreement and look forward to adding Geeknet's innovative products and services to our portfolio," said Hot Topic CEO Lisa Harper.

"Geeknet's unique concept and approach to the online retail community is a strong fit with our business strategy, which is focused on delivering great products for avid fans of various licensed properties, and we are excited about the opportunity to help drive profitable growth and further enhance value for Geeknet's customers," Harper said.

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

"We rate GEEKNET INC (GKNT) a SELL. This is driven by several weaknesses, 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, disappointing return on equity, poor profit margins, generally disappointing historical performance in the stock itself 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 Internet & Catalog Retail industry. The net income has significantly decreased by 80.9% when compared to the same quarter one year ago, falling from $5.07 million to $0.97 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Internet & Catalog Retail industry and the overall market, GEEKNET INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for GEEKNET INC is rather low; currently it is at 18.09%. It has decreased from the same quarter the previous year. Regardless of the weak results of the gross profit margin, the net profit margin of 1.33% is above that of the industry average.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 39.68%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 81.57% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • GEEKNET INC 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 two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, GEEKNET INC reported poor results of -$1.24 versus -$0.03 in the prior year. This year, the market expects an improvement in earnings (-$1.19 versus -$1.24).
  • You can view the full analysis from the report here: GKNT Ratings Report

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