Sigmund:
I appreciate your compliments and would love to give you my view on where THQI stands right now.
Ironically, a similar request was made on the Fooldom board yesterday so I hope you don't mind if I cut and paste my response. It follows:
THQI Perspectives:
In case you are wondering, I still hold every single share of THQI I bought back in August. I've been very content with what THQI has brought me forth thus far. It looks to be an excellent long term holding, IMO.
However the short short term (if there is such a thing) isn't as bright. Not something most here want to hear but I'll only tell you this from an objective view (if it's possible to hold an objective view and shares at the same time......)
First on THQI's fundamentals: Still rock solid. I was disappointed as many here were to hear of Pax's apparent dismal sales in spite of the fact they "met the company's expectations." I attribute this lackluster performance for not committing on my end of the bargain to buy all shareholders "Pax Imperia" games for themselves.
The Consensus estimate of 48 cents per share will be beaten, IMO for reasons that most of you probably already know. To summarize, WCW vs. NWO for the N64 was an astounding success. This is partly due to the fact that it is a fun game and the fact that the market for N64 games is relatively small when compared to the number of N64 platforms currently being used in the U.S. today. The platform per game ratio on the N64 is much higher than the
Sony Playstation's. Again, most of this you all already know....
Of course WCW isn't the only reason we should beat our consensus estimates. Ghost In the Shell and Bravo Air Race aren't as bad as some here might think. I don't have a national connection of dealers reporting to me like some have (Todd's apparently were confusing games though), but I can see from the general reaction of the public in various stores. This reasoning is by no means sufficient enough to base a foundation upon but just a "sign"
that things are going as planned.
I won't make any estimates on how many of each game was sold because I believe this process to be very subjective. I am not pointing fingers but nearly all estimates made last December of THQI's expected earnings were including Pax at 200,000 sold. "At least" many posters said. "But I'll be kind and say 150,000." Apparently they weren't kind enough.
I'm going to stick with what Farrell said in interviews. These were of course before he knew of WCW's upcoming success so they can be considered conservative. When you add the fact that Farrell is conservative by nature, you have an estimate that should be very low of what THQI will report. Farrell estimated 40 million in revenue. Assuming 10% margins and a constant tax rate of 22% from last quarter, EPS turns out to be 44 cents. Sounds
terrible huh??
Well, not really. This is about the lowest THQI can make. I expect 55 cents or so myself.
And what will happen when THQI makes its earnings report?? Well, a number of things could. First, if THQI were to report 55 cents or below, I think we'd see some selling on the news on the day of the announcement. However, the following weeks would lead to another rise and run in its stock price.
In the event that they blow my estimate away (again), THQI could trade up on the day of estimates and make the run that much more powerful. Point being: some type of run should follow the announcement. We'll see upgrades for Quarter 1 and among other things, reiterations and new coverage.
Currently, Earnings are scheduled to be released later this month. I'm sure all will be anxiously awaiting that date.
Now that I've touched upon the fundamental side of THQI, it's time for the technical side; the "bad" news in a sense. Before I speak a word on THQI's Technical status, let me give you some background on my feelings toward TA.
I'm not a TA expert. Not yet at least. In my investing experience, I found that TA, when used correctly, could get one in at the "right" time and one out by the "right" time. It signals many warnings before fundamental news breaks out. Case in point: Oxford Health, the stock which plummeted 63% in one day, gave numerous technical warnings before that big drop. Usually, the "big" guys know about these things before we do. And we can use
their trading patterns when a lot of them exit to help ourselves. It's not always the "big" guys.....a lot of "small" guys leaving is also bad news. Most TA chartists, unless they let their emotions interfere, should have been out long before that stock began its fall.
Is Oxford Health Plans the only example? Of course not. It's one that came to my mind among the thousands of stocks in the market and one that illustrates my point. I use TA to facilitate in purchase and exit points. That's all I use it for. I don't buy a stock based solely on TA and I don't buy a stock that has all the fundamental characteristics going for it but deteriorating technical ones.
That being said, I'll briefly discuss where THQI stands with respect to its TA nature.
THQI has been in an uptrend since 6/95. Its long term uptrend line (the line that defines when a stock is trending up) has not been broken or even is close to being broken. However, there are intermediate and shorter term lines that are applicable to THQI. The one I'm using is about 1 year old.
This line passes very smoothly through the support at 19 THQI made a few weeks ago. Intermediate termly speaking (I made that phrase up), THQI is positive. Okay, that all sounds good....so what's so bad??
In the last days of December, THQI made its 52 week high at 23 11/16. We were all celebrating (well I wasn't.....I was out of the country at the time) but that was silenced shortly thereafter. THQI fell back and established support at 19.
So now it bases for a month and begins its rise again. There was heavy volume (328,000) as it closed at 23 3/16 earlier this week. So the principal question: How will it handle its 23 11/16 resistance??
That day came yesterday as THQI crossed 23 11/16 but stopped dead in its tracks at 23 7/8. The 3/16 difference between these two numbers is negligible. It's ignored in other words. The resistance at 23 11/16 was tested and THQI didn't handle so well.....
Today was the last day of chance - of redemption (this is beginning to sound like some horror story). THQI opened up at went straight to its 23 7/8 mark again.......and again, was turned down by the market. What's important to notice? Volume was low, only 40k shares as of 2 pm. The stock was frustrated and couldn't make it further. What this meant is that the bulls were exhausted. They tried one more time to get over this resistance and
couldn't. This makes 23 3/4 (the area) very important. The day we close above that on strong volume is the day we begin another strong run.
But that day is not today. THQI has few choices at its disposal. The Bulls are definitely in control long term speaking. However, right now the Bears have the ball (this is not a football game though). The stock will do one of two things, IMHO.
We used to have solid resistance at 21$. This should now turn to support. If THQI finds support at that level and maybe after a few day base, it might gather enough strength to retest that 23 3/4 mark.
Or, THQI might find support at a different price above 21. This would be the makings of the famed "cup and handle." Let me warn you, however, the majority of Cup and Handle formations do fail. It is interesting to note that our last cup and handle formation given in early October is just about out of gas. Cup and Handle breakouts usually last 3-6 months. At the end of March, that cup and handle's steam will be out (not that it was ever
relying on it to make this run though). So, it is possible, however highly unlikely, that THQI is in the process of forming a new cup and handle.
This Cup and Handle would require THQI to base above the 21 support but below the 23 3/4 resistance. Perhaps around 22 1/4 (this is a wild guess). Point being, the stock needs to rest before its next run. I can tell you this isn't getting over 23 7/8 anytime soon though (within the next week at least). At least that's what the technical formations would lead me to believe.
The only other possible thing THQI might have done (and this is not good) is a double top. A double top indicates a trend reversal. The signal for the double top to be valid or "confirmed" would be for THQI to fall below 19....usually on heavy volume. However, this is the least likely scenario and my belief stands by one of the former 2 opinions.
Of course, you must also understand that if THQI reported earnings sooner than we expected, or some fundamental news was announced, the TA could get a bit harry. TA predicts, at times, what is going on within the company before we know about. The fundamentals do the same for TA at times as well. You have a raging stock when both are in sync.
In August I said I would sell the stock if it became overextended. When it reached 20 in November, I became nervous since the averages did not have time to catch up with it. Had it moved to 24 by Dec 31st, I would have taken my profits and entered at a later date. Of course, the stock did not do that (and I was out of the country so I couldn't have made any trades <g>) and rested just as I was hoping, allowing the averages to catch up (it's
true all stocks can achieve 100%+ returns year after year. They just cant do it too fast). The 50 DMA was right below THQI last week - a good sign.
TTFN - Ta Ta For Now
Conservatively Yours,
Raymond J. Norris |
