I think this stock is a very good risk/reward situation. For one thing, at current price you get the whole animation business for free; I'd say the animation business is undervalued either on a stand-alone basis or as an acquistion target.
Canada is a country which offers generous tax credits to film making industry and thus make the Canadian studios have great cost advantage over typical American studios. For example, a full-length CG film cost around at least $50mm to make, some even go up to 100mm. The first full-length Escape from the planet earth costs around $35mm to make. Despite the cost structure etc. I think the discrepency of production costs will finally attract the attention of major CG studios. If you look at the tax credits more closely, you will notice that almost all refund is tied to hiring people locally. My guess is that once RNK can prove to be proficient at creating a great CG move on its own, like the Escape thing, the value of the franchise will soar. When I am looking at the investment, I always ask myself, if I were pixar, how much do I want to pay for a dedicated team capable of making 2-3 feature-length CG movie a year, which enjoying the generous tax credits? If making a same CG movie in Canda can save 15mm or even 65mm, why make it in the US? If Pixar pay anywhere around 100mm, and let's say they make two extra CG movies per year, the ROIC for them is still 100%-200% percent, even on a cost basis. As a matter of fact, there is not many studios around there capable of doing what RNK can. With RNK management builds the team everyday, the value of the company is increasing although it is not shown on the income statment or balance sheet. That is what we define as intrinsic value.
Another proof of the value of the franchise is the deal to sell the post production and visual effects unit. Just take a look at the deal in detail you will see how the business is likely to be valued.
Things get more interesting as RNK now seeks to actually be a content maker and owner instead of just making films on a work for hire basis. As a investor, I would want to cash in the company at a price double of today's level without taking that risk as I believe they can sell at that price easily. But just as I said, I belive the company's value is increasing everyday.
A lot will depend on management. I think they did a good job acquiring Rainmaker, which is a great deal IMHO. However, I do believe those guys are not so financial savvy. It is understandable since RNK is so small a company and management would want to get rid of the distraction as soon as possible and focus on the animation business.
The content making thing is very tricky, to say at the least. The growth can be explosive, but a string of failed products will be a disaster. Actually, I am not counting on that. The bottom line is, RNK is worth a lot more than it is now even without thinking of its own content. With Tim on the board, I feel I am quite protected once things go sour. I really cant tell if these guys are great, but I do think they are quite rational. Simply, there is a margin of safety here.
RNK can be anything in 5 years. It can be something only happen in your wildest dreams. But be prepared, bumpy roads are ahead.