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Why Eros STX Global Stock Dove 28% Today

By Demitri Kalogeropoulos – Nov 16, 2021 at 11:10AM

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A major asset sale raises new questions about debt and growth.

What happened

Eros STX Global Corporation (ESGC -9.09%) dove today, dropping 28% by 11:00 a.m. EST as the wider market edged higher. The entertainment company announced plans to sell off its subsidiary and to extend the maturity date of some of its debt.

So what

Eros STX, a producer of TV and film content, said on Tuesday morning that it is in negotiations with another company for the sale of its subsidiary STX Entertainment, the company it merged with in mid-2020.

A man watching TV while drinking coffee at home.

Image source: Getty Images.

Eros STX is also extending the maturity date of roughly $127 million of debt, and that extension is partly tied to its ability to strike a deal for its subsidiary by early December.

Now what

The news clouds the growth picture for investors now that a large portion of the business is expected to be sold for an unspecified price. Eros STX has been busy taking on debt since it made the acquisition last year, and investors are still waiting for fully audited financial results for the fiscal 2020 year.

In that context, the asset sale raises new warning flags about the company's ability to sustainably grow sales and earnings without unduly burdening itself with debt. Thus, investors should be extremely cautious when considering buying this small-cap entertainment stock, even following today's price plunge.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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