Eros International Plc is down less than -15.04% YTD as (EROS) Updates on Merger Details

Eros International Plc (EROS) reported loss of -3.82% in market trading today. Recently, the company updated further regarding the merger agreement details with STX Entertainment and equity financings in a 6-K filing. Back on July 30, 2020, Eros announced the merger deal with STX and reported the completion of equity financing transactions worth $110 million.

Eros issued a total of 35,135,334 of its A Ordinary Shares in the equity financings to attain an aggregated proceeds of $110,387,500 at a per-share price of $3.14. The following per Eros A Ordinary share price represents a 60% premium over the closing price of $1.96 for the company’s A Ordinary Shares on April 16, 2020. The company has agreed to consummate an additional $15 million of equity financing within 90 days before the closure of the merger, described in the SEC 6-K filing. After the completion of the merger deal, the entire transaction will total the equity financing amount to $125 million.

At $2.77 per share, the company is currently around -15.04% down year to date in the stock market. At the time of writing, Eros International Plc (EROS) has a market cap of $415.47 million. The average transaction volume for EROS over the past month (5649141 shares per day) is trailing its average daily volume over the past year by 39.53, which suggests market participants have been more active in this stock of late.

Eros International Plc (EROS) has been in rally mode, as indicated by the relationship between its 200-day and 20-day major moving averages. That said, over the past 30 days, EROS shares have risen 17.94%. The stock has moved up 87.01 over the trailing 12 months, gaining behind the rest of the market by 603.96%. It has also trailed competitors and similar names by 12.73%.

Looking at Key Indicators

Naturally, a cursory survey of superficial price points from the chart don’t say a whole lot about where EROS shares could be headed. That’s why we need to dig a little deeper and check out what some of the most important momentum indicators seem to be saying.

The relationship between changes in price and the underlying strength or weakness over periods can point out deeper factors in the pattern that can often generate insights for technical analysts through momentum factors. Two of our favorite oscillating indicators are the Relative Strength Index (RSI) and the Stochastic %k Oscillator. In each case, the scoring is on a scale somewhere between 0 and 100, and in case, the levels to watch are “70” and “30”, with the former representing an “overbought” state and the latter presenting an “oversold” state.

With that in mind, here is a look at EROS shares from this perspective. The 20-day RSI reading for EROS is currently 42.04, which indicates that is not particularly expensive or cheap, and not predisposed to a reactive price movement based on this measure. If we look at the 20-day Stochastic %k measure, we find it at 16.29, which represents another indication of a oversold outlook.

Listening to the Analysts

Right now, EROS shares appear to be trading -38.44% under the average price target for one year ahead from Wall Street analysts, which is at $4.50. On average, Street analysts put their recommendation at 2.00, which is scored on a scale from 1 to 5, with 1 representing a “Strong Buy” and 5 representing a “Strong Sell”.

That suggests analysts are bullish on EROS looking ahead over the coming 12 months.

Assessing the Risk

Risk is an essential factor in comprehensive investment analysis. One of the key factors that analysts consider in determining the systemic risk involved in a stock is called “beta”, which represents an individual stock’s volatility relative to the volatility demonstrated by stocks as an asset class, in general, as a function of broad market data.

EROS, for example, trades right now with a beta of 1.11. The rest of the market is normalized to a beta score of 1.0, which means EROS is more volatile than the average stock. By the same token, EROS should be seen as somewhat more risky for market participants than the average stock.

We would also note that EROS has posted average daily volatility over the past two weeks of 111.54%, or 9.9% less than it has scored on the same measure over the past hundred days.

The Fundamentals in Focus

As we now turn to the fundamental picture, we begin by analyzing it the way one might analyze a building: by starting with the foundation – the balance sheet. Without a strong foundation, the rest of the structure can’t stand.

For EROS, cash levels are currently sitting at 2.56 million. That figure is balanced by 225.28 million in current liabilities. But that has to be put in context. The company’s debt levels have been falling. To further round out the picture, total assets are at 607.66 million and total liabilities sit at 299.17 million, granting a pretty thorough ground-up sense of the company and how it might withstand challenges ahead, should they appear.

In terms of recent free cash flow, EROS, is currently reporting 18.68 million, which represents a quarterly net change of -86.55 million in cash flowing in the door. In terms of operations, the company reported 18.74 million in net operating cash flow.

Looking at the revenue path, we saw last quarter’s top-line number come in at 28.82 million in total revenues, which represents a y/y quarterly change of 58.69, and a sequential quarterly sales decline of -58.70%.

That brings us to the real meat of the matter: the bottom line. Eros International Plc (EROS) yielded a gross basic income of 2.67 million, which comes on a Cost-of-Goods-Sold number registering at 26.15 million, seated in 122.29 billion total diluted outstanding shares, adding up to earnings per share of -3.23. Notably, the consensus view of analysts looking ahead to next quarter is currently at 0.11.

That allows us to round out this picture with a look at valuations. Based on this data, and the forecasts we have at hand, the coming fiscal year looks to be headed toward 0.34 in total earnings per share.

However, estimates are only guesses about the future. Both business and investment trends are more important to take into consideration.

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