Helios and Matheson Stock Prediction In 2019 (Buy or Sell?)
In this choppy and still overvalued market, where can you go for stable growth stocks that trade at a bargain?
In their search for value, analysts are starting to tout various distressed stocks, arguing that they’ve been unfairly beaten down and could soon turnaround.
One such stock is Helios and Matheson Analytics (NYSE: HMNY), an information technology (IT) firm that owns MoviePass.
Founded in 1982, Helios and Matheson has experienced its share of woes and extreme volatility in recent months, going from Wall Street darling to investment pariah. The erstwhile high-flying stock has plummeted and management continually fends off rumors of bankruptcy.
But now, some bargain hunters are licking their chops. They see HMNY as a classic contrarian play for investors willing to shoulder some risk.
“The time to buy is when there’s blood in the streets.” Attributed to the 18th century financier Baron Rothschild, this colorful and often repeated euphemism means that investors in the midst of a severe market downturn should seek inherently strong stocks that have been unfairly driven down in price by the irrational fear of the crowd.
Does the Baron’s sentiment apply to Helios and Matheson Analytics? Is the stock an enticing value play? Or is it a landmine that you should sidestep? Below, I sift through this complicated story to get some straight answers.
What Is Helios and Matheson?
Helios and Matheson Analytics, based in New York City, provides major corporations a broad variety of information technology (IT) solutions, including infrastructure, information management, and analytics services. Its clients operate in various industries, including financial services, automotive, insurance, and health care.
With a market cap of $27 million, Helios and Matheson also majority owns MoviePass, a subscription-based movie ticketing service. MoviePass has gotten a lot of press coverage.
MoviePass allows subscribers to purchase up to three movie tickets per month for a monthly fee. The service uses a mobile app whereby users check into a cinema and pick the movie and showtime; the cost of the ticket is deducted from a prepaid debit card and passed along to the cinema.
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How Has Helios and Matheson Performed?
The stock has been extremely volatile and suffered a precipitous decline. The following chart shows HMNY’s historical daily share price over the past five years, adjusted for splits and dividends (up to market close, December 3, 2018):
How Has Helios and Matheson Performed In 2017/2018?
In 2017, Helios and Matheson stock gained 102.8%, versus a 19.4% gain for the S&P 500. However, 2018 has been choppy — and disastrous — for HMNY.
On July 25, the company conducted a reverse stock split, compacting every 250 shares of its stock already outstanding into just one new share. This move was widely seen as the company’s desperate attempt to avoid the stock falling to a level that would cause Nasdaq to de-list it.
Theoretically, the move should have resulted in a share price of $22.50 (250 times the per-share price just prior to the reverse split). But investors grew unnerved and dumped the stock. By the end of the trading day, the stock was down by 53% and the slump has continued.
HMNY currently hovers at less than 2 cents per share, despite the company’s 1-to-250 reverse stock split in July. Helios stock has effectively lost all of its value in the year to date, whereas the S&P 500 has gained 3.5%.
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Who Are Helios and Matheson’s Rivals?
The company has rivals for both its IT and MoviePass operations:
AMC Entertainment Holdings (NYSE: AMC)
Kansas-based AMC Entertainment Holdings, through its subsidiaries, owns, operates, or has interests in 649 theaters with a total of 8,224 screens in the U.S. and 365 theaters and 2,945 screens internationally. AMC’s market cap stands at $1.4 billion.
AMC in June 2018 launched AMC Stubs A-List, a movie subscription service to compete with MoviePass. The service already claims 500,000 members and should derive financial stability from the multiplex behemoth’s economies of scale and high-margin concession sales.
Accenture (NYSE: ACN)
Dublin, Ireland-based Accenture (market cap: $106.4 billion) is a global management consulting and professional services firm that provides strategy, consulting, digital, technology and operations services.
The company has been on an acquisition spree, aiming to expand capabilities to cater to multiple business requirements. Notably, the company has bought several digital advertising and investment advisors.
Streamline Health Solutions (NSDQ: STRM)
Atlanta, Georgia-based Streamline (market cap: $15.4 million) provides health IT solutions and services for hospitals and health systems in the U.S. and Canada. It provides software-based data management and auditing services.
The increasing imperative within the U.S. health care system to contain costs is spawning a staggering array of administrative work. Stoking this bureaucratic machinery is the Affordable Care Act (ACA), commonly called Obamacare. Streamline is tapped into this booming field.
Will Helios and Matheson Go Up In 2019 (Should You Buy)?
First, the bull case, which is gathering adherents.
Helios and Matheson’s IT operations claim a diverse set of blue chip clients, ranging from Goldman Sachs (NYSE: GS) to Pfizer (NYSE: PFE). These clients are a source of strength.
In 2017, Helios announced that it had acquired a majority stake in MoviePass, a movie subscription technology company. MoviePass became a red hot app, garnering Helios and Matheson glowing news coverage in the financial press.
MoviePass’ original mission was to give movie goers low-cost, unlimited subscriptions to attend movies in physical theaters.
Admittedly, MoviePass has gone awry, losing both subscribers and money. But Helios and Matheson management isn’t standing still. They announced in October 2018 that they would spin off MoviePass into its own publicly traded company. The goal is to right the sinking ship by getting rid of MoviePass and re-focusing on the company’s IT business.
If the plan works, Helios and Matheson’s stock could soar from its depressed levels.
Will Helios and Matheson Go Down In 2019 (Should You Sell)?
Now, grab some popcorn and get ready for the horror show.
MoviePass has undergone several pricing structures, none of them effective. Helios and Matheson decided in 2017 to switch MoviePass to a plan allowing a single film per day priced at $9.95 per month, in an attempt to broaden the service’s reach and gather more personal information and viewing habits from customers.
The 2017 change in business model was initially successful in attracting customers, pushing the subscriber base to 2 million subscribers in February 2018. But the generous model resulted in losses, compelling Helios and Matheson to temporarily shut down MoviePass to negotiate a loan package to keep the company afloat.
This video explains the problematic business model behind MoviePass:
Helios and Matheson took drastic measures in an attempt to stem the bleeding, such as reducing MoviePass’ unlimited plan to only offer three no-cost tickets per-month (down from one per day), implementing fees and blackouts on blockbuster movie releases, and the removal of certain films and showtimes from the app.
These changes proved highly unpopular with customers, causing MoviePass to lose subscribers in droves and pushing the parent company further into the red.
MoviePass had 3 million members at the end of June 2018, peaking at 3.2 million by mid-August. This number has plummeted; the company won’t reveal by how much. Making matters worse, MoviePass has suffered recent technical glitches.
In July 2018, Helios and Matheson experienced a service outage with MoviePass because it didn’t have sufficient cash on hand to pay for movie tickets ordered by subscribers. To cover the payments, the company had to borrow $5 million in cash. The stock has headed south ever since.
Two Helios and Matheson board members resigned in protest in October 2018, the day after HMNY announced that it would spin off MoviePass. Meanwhile, the parent company’s IT business has been allowed to atrophy.
Helios and Matheson’s earnings reports have been ugly in recent quarters, largely due to heavy losses at MoviePass and its assets MoviePass Ventures and MoviePass Films, which invest in movies.
In third-quarter operational results posted in November 2018, Helios and Matheson management said it expects to continue incurring heavy net losses and suffer “significant cash outflows” for at least the next 12 months.
The company announced with great fanfare in October 2018 that it had secured $65 million in new funding to stave off bankruptcy, but it was later revealed that the money wasn’t exactly new. Indeed, the cash came via sales of its stock under an existing equity distribution agreement, which means the cost of this “funding” was a substantial amount of dilution.
Overall Helios and Matheson Forecast And Prediction For 2019
From January-December 2018, Helios and Matheson’s stock has gone from over $2,400 per share to less than 2 cents. Let that sink in.
Management continues to rule out the possibility of bankruptcy, but they seem to be whistling in the dark.
The average analyst expectation is for Helios and Matheson to continue posting significant losses in 2018 and 2019.
This stock isn’t a value play; it’s a value trap. In fact, it’s downright toxic. If you consider yourself a prudent investor, don’t touch HMNY with a bargepole.
John Persinos is the managing editor of Investing Daily.