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ErosSTX (NYSE:ESGC) stock gained our attention over the past few days as volume has been increasing. The price fell 35% on November 16th after the company announced it had entered into negotiations with a third party for the sale of its STX Entertainment subsidiary. But buyers came in yesterday in large volume. Is this the bottom?

ErosSTX Global Corporation

ErosSTX Global Corporation is an Indian-Americanmultinationalmedia company that acquires, produces, and distributes films, television shows, and digital content. It is a merger of the Indian film and entertainment studio Eros International PLC and the American mini-major film studio STX Entertainment.

The later is now likely to be sold for $173M to The Najafi Companies, a US-based private investment company with holdings in media, tech and sports. 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.

Has the price fallen too much?

The loss of a large portion of business is not what growth investors wanted to hear and the price fell. However, with the price now down to $0.26, are buyers likely to come in for a recovery? The purchase agreement also provides ESGC with a “go-shop” period, during which the board of directors of ESGC, with the assistance of its financial advisor, Lazard, will solicit alternative proposals from third parties for a period of 45 days.

Buyers yesterday brought the daily volume to 22 million, 6 times the 50 day average of 3.66 million. The demand is high at this low price even if the longer term picture is unclear at this time. We think the price could recover to a price of $0.40 (20DMA) over the next weeks as the deal closes.

Technicals

The weekly chart is forming a descending wedge, with the current price holding above the bottom support. If this price was to test the upper resistance, we would see the price around $0.60, which is also where the 50DMA is currently.

Chart provided by TradingView

Overview

Currently, all five films that Eros are working on have provided profitability, including Greenland, where the company used a combination of international theatrical, US PVOD, digital and physical home entertainment and a US streaming deal with HBO to achieve an estimated $25 million in ultimate cash profit and a 90% return on invested capital.

Ultimately, this is a minor setback in the bigger picture for Eros who have become profitable within the year. This is a growth stock that is offering an opportunity to get in at a cheap price. We believe the company will continue to capitalise on the increased demand for premium film content.

AlphaPicks does not own a position in ESGC. To trade shares, register here with our preferred partner, EToro.

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