Trendline support at friday's lows was not broken. Still in the uptrend, but 200 MA overhead at 17 1/4.
MACD, STOCH and ADx rolling over suggesting period of consolidation. Probably off the lows for a
while since options expiration. Earnings probably late march, may have another run through 200 MA.
Good entry point below 15.
The Street is starting to notice....
biz.yahoo.com
Thursday February 15, 10:21 am Eastern Time
MotleyFool.com - Daily Double
Daily Double: 4Kids Hatches a Double
By Rick Aristotle Munarriz
4Kids Entertainment Inc.
Ticker: (NYSE: KDE - news)
Phone: 212-758-7666
Website: 4kidsent.com
Price (2/14/01): $14.90
How Did It Double?
When we last left our hero, Pikachu was blasted to the ground. Stunned by "fad" attacks from the evil Wall Street pundits, were the days of the Pokemon franchise numbered? Was 4Kids, after licensing the popular Nintendo property to 500 different companies outside of Asia for a property that had produced more than $10 billion in merchandise sales, about to lose out to fickle fashion?
Nope. Pokemon proved to have a longer shelf life than many had projected -- and it helped the company pack new franchises into its Pokeball for a rainy day. 4Kids also had a clean cash-rich balance sheet and stunning 43% in net profit margins -- which translated into an amazing 64% return on equity over the past year.
After falling to single digits last month, 4Kids stock began to get charged up -- like Pikachu on attack. Peaking or not, Pokemon had 4Kids reporting an 169% uptick in sales while profits more than tripled through the first nine months of last year. You have to flash to be a flash in the pan and Wall Street had sold the company short (literally and figuratively). As for our beloved Pikachu? It was nothing but a flesh wound.
Business Description
4Kids, through different subsidiaries, gets characters out there. From merchandise licensing and product development (Leisure Concepts) to video, film and music production (4Kids Productions) to media buying and planning (Summit Media), 4Kids offers a gamut of entertainment industry services. The company is based out of New York City.
Financial Facts
Income Statement
12-month sales: $103.7 million
12-month income: $44.3 million
12-month EPS: $3.39
Profit Margin: 42.7%
Market Cap: $195.2 million
Balance Sheet
Cash: $163.7 million
Current Assets: $189.6 million
Current Liabilities: $101.1 million
Long-term Debt: N/A
Ratios
Price-to-earnings: 4.4
Price-to-sales: 1.9
How Could You Have Found This Double?
4Kids always ran a lean ship. The company was profitable even before the Pokemon lottery ticket landed on its lap. When the company secured the long-term licensing deal from Nintendo there were no assurances that the popular Japanese series of Pokemon video games and cartoons would catch on overseas.
Well, it did. Pokemon was rolled out in Japan in 1996. It didn't make it to the United States until 1998. Europe launched a year later. But as exciting as the run has been, the franchise seems to be losing steam.
"We cannot change the fact that Pokemon, Furby and Star Wars are no longer the phenomenon they were,'' Hasbro (NYSE: HAS - news) CEO Alan Hassenfeld told analysts last week in explaining the company's quarterly loss. Holy Jar Jar Binks Coin Bank, Obi Wan!
For Pokemon, the Japanese have moved on. If we take Hasbro at its word, the franchise's stateside spotlight has also started dimming. Investors were selling off the stock even as Pokemon was climbing the fiscal mountain. The market works that way. Wall Street is always looking ahead. With Pokemon making up most of 4Kids' revenue, "looking ahead" to what lied beyond the mountain peak was fair.
Yet there were a few vistas missing from the mountain watcher perspective. For starters, when the stock fell down to $8 it was trading at just a little over two times trailing earnings. More vulture drool came from the fact that the company was selling for less than the amount of cash on its balance sheet. Remember, before the Pokemon royalty trickle turned into a deluge, 4Kids was profitable. There was little reason to mark down the stock that low even under a less lucrative post-Pikachu scenario.
But we also had the company itself to consider. Europe, with its one year lag, should still be good for a few more quarters of Poke-mania. But beyond that it's important to look at the past. Thanks to the Pokemon success, 4Kids was able to strike up relationships with 500 different licensed merchandise companies. From vitamins to pillow cases, 4Kids now has its foot firmly in many a door.
4Kids was also worthy of receiving some of the credit in the successful translation of the franchise outside of Japan. That was certainly not a given. Kudos to 4Kids on that. And that newfound hot reputation would surely be enough to bring new projects to the 4Kids doorstep. The stock was too cheap. The perception of 4Kids as a one-hit wonder too myopic.
Cubix. Never heard of it? That's one of the new ponies in the 4Kids stable. The computer-animated robot cartoon will debut on the same WB Kids rotation that made Pokemon so popular this year.
Pokemon spawned a wildly popular trading-card game but Hasbro and its Wizards of the Coast line seems to be banking on similar "Magic" in new Harry-Potter-themed card games. In short, Hasbro has moved on but the "gotta catch 'em all" mentality seems to be alive and well in the toy industry.
That is why Cubix seems so exciting. The Trendmasters line of toys merges last year's robotic pets trend and adds a card-collecting twist. Collect new cards, trade them if you must, buy up booster packs -- it all enhances the features and personality of your Cubix. Unlike Pokemon, 4Kids actually owns a stake in this venture so the royalties (and, yes, risks) loom large here.
Cubix isn't the only hay-munching saddle ride. Nintendo has a big roster of characters, and the latest game in the Mario series was released this week for the Nintendo 64. 4Kids doesn't profit from the video games naturally, but any rise in character popularity can open up new merchandise licensing deals.
The Nintendo franchise is tricky, though. It's not only a matter of character development but the success of the console itself. With Sega out but Sony (NYSE: SNE - news) still at the top and Microsoft (Nasdaq: MSFT - news) rolling out its X-Box later this year, a lot of the value in this property depends on how well-received the Nintendo GAMECUBE does with its pre-holiday release.
So it's important to note that 4Kids is building beyond the Nintendo front. From Monster Truck vehicles to even more Japanese animated properties like Ultraman Tiga and Kinnikuman, 4Kids is laying unhatched eggs in many different baskets.
Since the company is an intermediary (with the 100% showing in gross margins to prove it) with little in overhead, it can survive even through the most modest levels of success. Given its strong balance sheet, lackluster performance seems to be about all that is priced into the stock. So, if the company is ever able to catch lightning in a bottle again -- far from a sure thing but certainly feasible -- investors might very well be back driving the stock even higher. Because, you know, they've gotta catch 'em all!
Rick Aristotle Munarriz and his wife have two boys. The seven-year-old loves to play Pokemon Stadium (on the N64 and the electronic board game). The two-year-old loves to turn it off. But Rick does not own shares in 4Kids -- he lives it. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.
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