What: Shares of DreamWorks Animation SKG (DWA) gained 21.7% in November, according to data from S&P Capital IQ. Following on the heels of a 16% surge in October, the animated-film studio gained 41% in just two months.
So what: The big driver of DreamWorks' November gains came early on, when the company reported solid third-quarter results. Both earnings and revenues came in ahead of analyst expectations, in large part thanks to a profitable distribution relationship with Netflix (NFLX 1.37%).
Now what: The TV segment helped DreamWorks crush analyst targets, and CFO Fazal Merchant spoke himself starry-eyed about how "a disproportionate amount of that is Netflix-related." So it's crystal clear that this partnership is good for DreamWorks' top line, especially from a stability point of view.
If all of that sounds like roses and unicorns, you must have forgotten about August already. Because of a disappointing second-quarter report with weak consumer-goods sales, DreamWorks shares fell more than 17% in that quarter.
This is a highly volatile stock, and not even the Netflix tie-in is certain to save DreamWorks' long-term bacon. The company must execute with a steady stream of high-quality content, and DreamWorks has honestly been hit-and-miss in that crucial department lately.
So depending on how you look at DreamWorks today, the stock looks either very expensive (negative earnings and even forward P/E ratios are through the roof) or extremely cheap (the PEG ratio is a rock-bottom 0.3). And from where I sit, there's no reliable way to see which one of these extreme assessments would be more accurate.
I like how DreamWorks is exploring high-quality partnerships and new revenue streams, but this company has a lot to prove. For now, DreamWorks is simply a "show-me" stock.
