fyi, from Briefing.com today--
Updated: 24-Oct-03
Small Cap Momentum Radar: Mad Catz Interactive (MCZ)
[BRIEFING.COM -- Robert J. Reid] If you believe that the all-in-one wireless gadget is inevitable, consider Mad Catz which recently inked a deal to make accessories for Nokia's N-Gage. It's a small cap stock showing momentum, has a reasonable valuation and the timing is right heading into the holiday shopping season.
Background
Mad Catz Interactive (MCZ 1.00 -0.05) makes and sells a full range of accessories for video game consoles and portables, including the industry leading GameShark brand of video game enhancements. Mad Catz sells peripherals in the interactive entertainment industry, with distribution through nine of the top ten US retailers offering interactive entertainment products.
Key Points
Nokia Deal: Mad Catz recently announced an agreement with Nokia whereby Mad Catz will sell licensed accessories for the Nokia N-Gage game deck. The N-Gage was launched on October 7.
What is the N-Gage?: The N-Gage system has a retail cost of $299 and is a wireless jack-of-all trades so to speak. The all-in-one device offers: a cell phone, a PDA, an Instant Messenger, WAP-enabled Web Browser, an MP3 player and even a radio receiver. Nokia has signed up several game developers to ensure that a range of games is available.
Early Results: Nokia recently reported that its N-Gage portable game decks made a strong debut, selling around 400,000 units in the first two weeks. Sales to consumers were very good in Europe and Asia Pacific. Nokia has set itself a target to sell between 6-9 mln units before the end of 2004 as it challenges the dominance of Japan's Nintendo GameBoy Advance. By comparison, Nintendo says it aims to sell some 20 mln GameBoy Advance units in its current fiscal year which started in April.
Not All Are Pleased: While Nokia is pleased with the early results, industry watchers say it's not a huge quantity for a global number. One problem is the high price at $299 vs GameBoy Advance at around $100 although it is mainly just a game console. However, keep in mind that sales did fairly well despite the N-Gage being widely panned by the technical press. Obviously, the key will be Christmas sales. The more N-Gage sales means more sales for accessory makers like Mad Catz.
Risk: A fear is that if N-Gage sales are lackluster, Mad Catz could be hurt as it spent considerable time and money making accessories for N-Gage.
The Longer Term Battle: Nokia's goal is to redefine how consumers use cellphones. Whether the N-Gage succeeds or not, it's becoming clear that within five years a wireless device that functions exclusively as a telephone will be considered antiquated.
Other Products: All of Mad Catz's eggs are not in the N-Gage basket. Its GameShark product lineup is popular. For example, its GameSaves for Xbox recently started shipping. It enables players to access and experience virtually any level within a game, obtain killer objects and unlock hidden areas, all without having to complete preceding levels. GameSaves has a suggested retail price of $24.99.
Media Player: Also, the co recently began shipping its GameShark Media Player, which enables users to stream music, video, and digital images from the computer to the television or home entertainment system through a PlayStation2 with a network adapter. It retails for an MSRP of $49.99.
Valuation: The company is profitable as analysts expect FY04 (Mar) EPS to come in at $0.06 (p/e 17.5x) and expect FY05 EPS to grow 83% to $0.11 (p/e 9.5x). Co is expected to post $118 mln in sales this year for a reasonable price/sales of 0.47x.
Bottom Line: Any stock trading in the $1 range is going to be risky which is the main reason it's a Momentum Radar. We wouldn't put retirement money in this name, but the co is profitable and has a reasonable valuation given its risk profile. We also like the timing heading into the holiday shopping season as we'd expect the stock to move on any N-Gage related sales data. We also like the chart, as the stock has moved, but not so dramatically that we'd expect a quick pullback. A stop loss at support at $0.80 makes sense. |
