Sun et al,
An equity that fits most of the criteria mentioned is THQI. Good balance sheet, Market cap about $200M, no Asian exposure. Excellent margins. Growth rate may be a little low for your taste 20%. Coincidently they reported earnings today, beat expectations for the 15th straight quarter. Leading into the fourth quarter a number of new titles to be released. Volatile, but what small cap isn't? Conference call today provided positive forward guidance to the analysts, which was a first time for the CEO. In spite of beating the estimate, he had always discouraged analysts from raising estimates. I suspect this prior approach had a lot to do with the sell offs for the previous earnings reports. One of the major problems that I see for small caps is that they rarely try to manage share value; they seem to hold the view that they can't influence the market. It seems one has to look to a few large caps to find the CEO that actively manages share value. DELL and AMZN come to mind.
Some obvious risks. THQI doesn't have their own development them, they license and distribute (which does give them the high margins). I think they may be approaching a level where to continue growth they will need to add development teams and/or acquire. Each has their own implications towards management, margins and the certain hit the stock would take during an acquisition. On the other hand they are in a reasonable cash position, excellent margins and might be an acquisition target themselves. There is also a large short interest in the stock which one should be aware of. Most stocks I can at least understand why shorts would take a position. Here, frankly, I'm stumped. If anyone looks into this I would appreciate any insights into any rationale for a short position.
I wouldn't suggest an entry point...as I reflect over my history, picking entry points is not my forte. But the folks here seem quite capable.
Best Regards,
Jim |
