DreamWorks Animation SKG, Inc. (DWA)

I wrote a blog entry about why I love Dreamworks:
Dreamworks' core business is movies, specifically computer animated movies. Most of these movies are extremely profitable (Kung Fu Panda grossed $635 million on a $130 million budget) and the ones that weren't at least made some profit (Flushed Away grossed $175 million on a $149 million budget). Based on Dreamworks' future lineup, they seem committed to both cashing in on past successes (Shrek, Madagascar and Kung Fu Panda sequels) as well as attempting new ideas. So far they have 3 fantastic series that act as cash cows which gives them plenty of wiggle room to develop new IPs.

Now Pixar (Dreamworks' main competition) tends to have the better rated movies, but stock investing isn't about getting the best reviews, it's about making money. Dreamworks movies make just as much if not more money than Pixar movies. Pixar also has nothing lined up for the next two years other than sequels, they're making less effort in developing new ideas. Also, Pixar is owned by Disney so you invest in Pixar alone (other I would have), only the giant saturated Disney.

Dreamworks also has been looking into alternative sources of income, they're licensing their characters much like Marvel. They now make money off toys, broadway shows, t.v. shows, and video games (though video game movies tend to be awful, kids are less picky about what they want). This provides both a nice place for growth and a nice cushion in the event of a flop.

Any analysis would not be complete without checking the fundamentals. Dreamworks has almost 4 times as much equity as liabilties, almost no long term debt, and plenty of cash. The p/e is currently at 16, which in my opinion is low compared to the expected growth of Dreamworks. At a rate of 2 movies a year (1 cash cow and 1 new IP) and the possibility of new profitable series like Shrek, I think Dreamworks' growth is going to be pretty amazing.