DreamWorks Animation: Did It Deserve Wednesday's Selling Pressure?

I've been positive on the studio's future prospects, but even I'll admit that the drop in per-share profit was substantial. According to the press release, the company brought in 24 cents per diluted share in the first quarter, versus the 71 cents per diluted share made in the previous year's similar period. Cash flow wasn't great, either. Approximately $4.8 million was needed to fund operating activities. Last time around, over $42 million was generated from operations.

I'm sorry, I just can't get myself to bear status on this stock. We're getting closer and closer to the release of Shrek Forever After. It will hit the screens on May 21, and I believe it will have a powerful opening.

Yes, buying now would be risky; DreamWorks Animation is one of those stocks that can plunge unexpectedly. However, if you already hold the stock and have a long-term attitude, I would ignore the Q1 profit issue. Net income and cash flow should improve as the new Shrek brings value to the business over time.

And don't forget that the latest cartoon, How to Train Your Dragon, is holding up fairly well at theaters. It has grossed, as of this writing, $180 million domestically and $195 million internationally. Remember the weak debut of the project last month? I wrote about it, and brought up a comparison to Monsters vs. Aliens in the process. Well, guess what? The latter feature made $381 million on a worldwide basis in 2009, according to Box Office Mojo. Looks like Dragon will be overtaking that figure. And here's something else: DreamWorks will be releasing a sequel in 2013, thus showing confidence in the movie brand.

Indeed, DreamWorks Animation is going to be very interesting to watch over the next month. Sure, I can see why Wall Street dealt a punishing blow to the shares during yesterday's session. Nevertheless, the studio may prosper over the coming months.

Disclosure: I own Disney; positions can change without notice.