Any speculation about future stock prices and timetables is purely speculation, so bear that in mind. I've been wrong before, so by all means, do your own research.
Now that my disclaimer is out of the way <g>, I'll tell you why I like the company.
The last press release gives a pretty good indication of where we are headed. One of the keys to MGAM's success is their MegaMania network. Their desire to expand this network is why they did the private placement in 1996. The capital infusion gave them the resources to purchase and install an additional 1000 machines. They installed 208 in January, have about 250 scheduled for February, and expect to have about 600 installed by the end of March. I don't have details on the remaing 400, but I think it is likely that they will be targeted for April and May.
Referring to the last press release, the MegaMania network averaged $37,000 per day in December, $44,000 per day in January, and $56,000 per day in the first 11 days of February. That is pretty good revenue growth! The infrastructure to support the network is capable of handling 3,000 machines, so there is still room to grow.
Since MGAM operates on a fiscal year ending September 30th, the earnings report that we just got was for their 1st quarter. They are currently in their 2nd quarter.
If we take the December average and multiply it by 90 days, we get $3,330,000 in revenue generated from MegaMania. (This assumes that there was no growth in MegaMania revenue during the quarter.) Total revenue in the quarter was $6,805,000. That leaves $3,475,000 from other sources. (This is a conservative estimate, since we are assuming no MegaMania revenue growth in the quarter.) Multiplying this figure by four quarters gives us $13,900,000 in yearly revenue from sources other than MegaMania. (Again, I think this is conservative.)
It is a little more difficult to gauge where the 2nd quarter revenue will be, but I think it is fairly safe to use the $56,000 per day average for the first 11 days of February as a starting point. I'll use $50,000 per day times 90 days in the quarter to get $4,500,000 in MegaMania revenue for the quarter. Assuming ZERO growth in MegaMania gives us $13,500,000 in revenue for the current and the next two quarters, plus the $3,300,000 from the first quarter. That means MegaMania should be capable of generating at LEAST $16,800,000 for the fiscal year. Add that to the $13,900,000 in revenue from other sources, and we have a company doing $30,700,000 a year in sales.
Factor in substantial growth in MegaMania revenues, and we could see $40,000,000 or higher.
Where does that leave us from a price standpoint? If we use a price to sales multiple of ONE, $30,000,000 in revenue divided by my estimate of shares outstanding (5,000,000 shares), we get $6.00. A price to sales multiple of 2 gives $12.00, etc. I'm using a worst case number of shares here. MGAM says there are about 3,000,000 shares outstanding, but I'm including ALL of the private placement shares and warrants.
A price to earnings ratio is more difficult, since MGAM hasn't shown a substantial profit yet. The company is running profitably in the current quarter, so we should find out in a couple of months how successful they have been.
As far as a timetable, based on the way MegaMania revenues are climbing, it shouldn't take too long.
Another unknown is whether they can generate any NEW revenue sources on top of what they already have. |
