The Contrarian Blog

Lions Gate Entertainment Defies Shorts' Expectations

by Karee Venema 3/29/2012 10:02 AM
Stocks quoted in this article:
Publication: "Bloomberg Businessweek"
Publication title: "The Hunger Games Is Just Lions Gate's Latest Hit"
Publication Date: 3/23/2012
Brief Summary:

The author of this article waxes optimistic about Lions Gate Entertainment (LGF), and the studio's ability to emerge as "the big entertainment industry winner of 2012." How did Vancouver-based LGF accomplish such a feat? According to the author, by initially scooping up a host of hits -- such as the cult classic Dogma -- that were seen as "too controversial" for major U.S. studios. Co-chairman and CEO Jon Feltheimer continued with his shopping spree, acquiring a laundry list of assets that included Summit Entertainment, producers of the insanely popular Twilight movies. LGF's most recent piece de resistance is the first installment of The Hunger Games trilogy, which recently opened to record crowds. In addition to being in the business of producing, Feltheimer expanded LGF's credits to include the film libraries of studio stalwarts Trimark Holdings, Artisan Entertainment, and Mandate Pictures. The author notes that this large accumulation of assets -- with additional hits on the horizon -- make the stock appealing to investors.

Contrarian Takeaway:

On the technical front, LGF showed promise long before The Hunger Games release. The stock has tacked on more than 115% on a year-over-year basis. In fact, over the course of the past 60 trading sessions, LGF has outperformed the broader S&P 500 Index (SPX) by 52 percentage points, on a relative-strength basis. More recently, the security has set up camp in the $13.50 neighborhood -- an area that has emerged as support since mid-February.

Despite LGF's showing of technical might, sentiment surrounding the stock is mixed. In the options arena, traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 6.56 calls for every put over the past 20 trading sessions. However, with short interest accounting for 26.4% of the stock's available float, this recent uptick in call volume may simply be the result of short sellers picking up hedges on their pessimistic positions.

Should LGF continue with its upward momentum, a capitulation from some of these short sellers could give the stock a boost in the near term.


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