Analysis on Demand

[David Randolph]

Hi

I would like you to give me suggestions of stocks to analyze. Just write the ticker symbol as a reply to this thread, or if you want to, provide additional information.

I'll go making the analysis, one per trading day, looking to know more and more stocks and therefore finding investment opportunities.

Today I'm going to write (or make a video) on MCZ because la-onda had requested this one a few days ago and I'm interested in taking another look at it.

Thanks

[capricho]

BMRN

[sfhappyfish88]

CNXT please. Thanks.

[soxguy]

DUK,if you please. No hurry,i'm in this long term.

[visualjourney]

SHSN

[jackyw]

HMSY please.

I chatted with Ramsburg the other day, and the chart looks bullish.



Jacky

[David Randolph]

1. Profile

Mad Catz Interactive, Inc. (MCZ), together with its subsidiaries, engages in the design, manufacture, marketing, and distribution of accessories for video game platforms in the United States. Its products include video game controllers and accessories, such as control pads, steering wheels, joysticks, memory cards, video cables, light guns, dance pads, microphones, car adapters, and carry cases. The company also markets game enhancement software and publishes video games. Mad Catz Interactive markets its products in the United States, Canada, and Europe. The company was founded in 1989.

2. Stock Price History
2.1. Chart since IPO



I guess there's some anomaly in this chart back in 1999, since in stockcharts.com I see the company's IPO at around $3.5 in November 1999.

MCZ fell 90% from the early 2000 high of $3.5 to the April 2001 low of $0.30. Then a recovery began which took the stock to a high of $1.98 in August 2001 (a 560% advance in just 4 months). It's interesting to note that the company's fundamentals justified these wild moves, because revenue shrank from $72 M in 2000 to $55 M in 2001. Then it rebounded to $85 M in fiscal 2002 (which started in April 2001) and the company returned a $0.02 EPS for the year. The stock price moved as expectations changed.

But then the market thought that a $1.98 stock price was too high for just $0.02 in EPS (the P/E ratio was 99) and the stock fell back down to a low of $0.43 in early 2003 (here the P/E was a more normal 21.5). Then another recovery phase and another dip back down to values below $0.5.

The 2nd big advance phase began in mid 2004 and lasted until early 2005. This was a 325% rise. Again, it was fully justified by the fundamental landscape, because EPS rose from $0.02 in 2004 to $0.08 in fiscal 2005 (which ended in March 2005). However, because the company couldn't sustain profits and indeed posted a ($0.12) loss per share in fiscal 2006, the stock fell 84% to $0.30, its all time low. This was in August 2006.

Now, one year later, MCZ closed at $0.99. The company reported EPS of $0.07 in fiscal 2007, so the trailing P/E is 14, which is moderately attractive.

2.2. Short term chart



In mid May, 2007, MCZ started a meaningful 100% plus rally. There weren't any news to justify the change, I guess it was just that the stock was too cheap. Earnings were out on August 14 and the market wasn't particularly interested, even though they were positive from a gross margin basis, as the company achieved a record 32% gross margin. Sales were down 19.6%, as expected.

I view the results as positive because MCZ's problem isn't the level of sales, but its low margins. The company is now a $55 M market cap company.

Technically, as we look at the chart since the IPO, it sure looks like another cyclical downturn is happening that will only stop, as usual, at around $0.30. However the short term chart shows support at the 200 days SMA.

3. Fundamental Analysis



As you probably know my valuation model has 4 variables, which are the white lines, the yellow lines are known facts and the dark yellow lines are calculated automatically by Excel.

1) Dilution Factor

Historically, and for the past three years, there wasn't any share count increase in MCZ, so I considered just 1% as the dilution factor (1.01 on the model).

2) Revenue CAGR

Since revenue in the fiscal 1st quarter of 2008 fell 19.6% from the year ago levels, I think revenues will be about 15 - 20% lower three years from now than what they were in fiscal 2007. This means fiscal 2010 revenue of about $85 M and 0.95 as revenue CAGR in the valuation model.

3) Net Profit Margin

Net profit margin was 3.7% in fiscal 2007 and I expect it to expand to about 7% over the long term. I don't think MCZ has a business model that will bring it more than 10% net profit margin, there's intense competition in its space and it has no pricing power. Except perhaps for the its new product, the Hybrid Earphones, but they will be selling for such a high price ($99.99), I don't know if there will be strong demand for them. It's an open question.

4) EPS multiple estimate

Here I put the Toys & Games industry average P/E, which is 17.9.

5. Conclusion

The valuation model results tell me MCZ is undervalued, but not extremely attractive, with an expected share price CAGR of 25%. The optimal selling price (the price at which the share price CAGR falls below 16%) given by my valuation model is $1.25, that is, about 26% higher than the current share price, which is attractive, but not enough to buy for a concentrated portfolio like the Main.

Overall I think this stock moves wildly with changes in EPS, but I don't see EPS growing much more than the $0.07 the company reported in 2007, unless there's a fundamental change of some kind, like truly innovative products. The hybrid earphone is a good promise, but I would wait to see if it sells or not. As for the rest of the product portfolio ... I don't find it particularly interesting.

My current opinion on MCZ is moderately positive. Good luck if you own it and please let me know if there's new, relevant, information.

Tomorrow I'll write about BMRN, requested by Capricho.

[sctrben]

It's been a while since INSM was hit on before... INSMED has come a long way since those last discussions, all speculation of how the court case would go is now behind them. Test Phases are soon to be bringing new speculative excitement on several fronts, ROP, HARS, MMD, ALS, FOB... 

9 NEW positions, 15 INCREASED positions, and only 3 sold out is a complete turnaround in institutional sentiment...
http://www.nasdaq.com/asp/Holdings.asp?F...

[Terliso]

How about AVCI, looks like a good one for long-term hold.

[David Randolph]

BMRN

1. Profile

BioMarin Pharmaceutical, Inc. (BMRN) develops and commercializes biopharmaceuticals for serious diseases and medical conditions. The company's product portfolio comprised of approved products and various investigational product candidates. Approved products include Naglazyme (galsulfase), a recombinant form of N-acetylgalactosamine 4-sulfatase enzyme used for the treatment of genetic disease called mucopolysaccharidosis VI; and Aldurazyme that is used for the treatment of mucopolysaccharidosis I caused by the deficiency of a lysosomal enzyme called alpha-L-iduronidase. It also develops various investigational product candidates for the treatment of genetic diseases, including Kuvan (sapropterin dihydrochloride), formerly referred to as Phenoptin, a proprietary oral form of tetrahydrobiopterin (6R-BH4 or BH4), for the treatment of Phenylketonuria (PKU); and Phenylase (phenylalanine ammonia lyase), an enzyme substitution therapy for the treatment of phenylketonurics, who are not 6R-BH4 responsive. Further, BioMarin Pharmaceutical evaluates preclinical development of various other enzyme product candidates for genetic and other diseases, as well as an immune tolerance platform technology to overcome limitations associated with the delivery of existing pharmaceuticals. The company also holds rights to receive payments and royalties related to Orapred (prednisolone sodium phosphate) and Orapred ODT (prednisolone sodium phosphate orally disintegrating tablets) subsequent to the sublicense of North American rights. It sells its products to specialty pharmacies, hospitals acting as retailers, and pharmaceutical wholesalers in the United States, Japan, and European Union. BioMarin Pharmaceutical, Inc. has strategic alliance with Merck Serono. The company was founded in 1996 and is headquartered in Novato, California.

2. Stock price history since IPO



BMRN's IPO was back in 1999 and the stock debuted at $15. Today it stands at $22.23, a 48% rise in about eight years. However, the company's value, given by the market cap, increased a lot more than that, because the share count rose every year (the numbers in red below the price chart are the share count - in millions).

In 1999 the market cap was $15*35 M = $525 M. Today it is $22.23*96 M = $2.13 B, that is, 306% more than in 1999.

This is just for us to understand what dilution makes to returns over the long term.

BMRN being a biotechnology company with dilutive habits I would reject it right away, but I must say that generally I dislike the biotech sector (also because I don't know how to value it well). But let me try to take a look at BMRN with an open mind.

The rise on point 1 was due to the late 1999, early 2000 technology bubble. Back then the company had $12 M in annual revenue and $37 M in losses. The bubble collapsed and BMRN fell 91% on phase 2 on the chart. Phase 3 was a 283% rebound in about a year. I don't see any fundamental reason for this rise, other than the stock had been down 90% plus previously. Because there wasn't a fundamental back up BMRN fell back down in phase 4, to a low of $3.88 in November 2004. That was the low, the stock rose ever since ...

2.1. Medium term chart



I see revenues rising and losses diminishing quarter after quarter. Here are analysts expectations for the current year and 2008:



So, we're talking about $0.36 EPS estimate for 2008. This means the forward earnings multiple is 62. I don't understand this valuation, I think it is absurd, like I do for most biotechnology companies, I'm sorry.

3. Conclusion

Perhaps BMRN's pipeline of new drugs, or existing drug's potential justifies this kind of valuation, but I don't have enough knowledge to value that.

I try to avoid businesses I don't understand, especially if the company is a "diluter".

My overall opinion on BMRN is negative, even though I recognize it is made out of insufficient knowledge. Good luck if you know it well and own it

Tomorrow I'll write about CNXT, requested by sfhappyfish88. Thanks for your suggestions

[David Randolph]

CNXT please. Thanks.

1. Profile

Conexant Systems, Inc. (CNXT) designs, develops, and sells semiconductor system solutions for broadband communications worldwide. It offers semiconductor devices, software, and reference designs for use in broadband communications applications that enable high-speed transmission, processing, and distribution of audio, video, voice, and data to homes and business enterprises. The company's broadband access products include digital subscriber line products comprising digital signal processors, network or communication processors, integrated software on silicon, analog front-end chips, line drivers, and reference design guides. Its broadband media processing products comprise various broadcast audio and video decoder and encoder devices, as well as front-end communications components that capture, display, storage, playback, and transfer of audio and video content in digital home and small office products, such as personal computers, television set-top boxes, gaming consoles, personal video recorders, and digital versatile disk applications. The company offers universal access products, including analog modem chipsets that connects users to the Internet through their desktop and notebook personal computers; and dial-up modem chipset, which include mixed-signal intensive, controllerless modem chipsets, and software modem solutions. Its wireless networking products comprise radio frequency transceivers, analog base-band integrated circuits, digital base-band and media access controller chips, and reference design guides. The company sells its semiconductor products and system solutions directly to original equipment manufacturers of communication electronics products; indirectly through electronic components distributors; and to third-party electronic manufacturing service providers. It operates in North America, South America, Europe, Africa, the Asia-Pacific region, and the Middle East. The company was founded in 1996 and is headquartered in Newport Beach, California.

2. Stock price history



Nobody would thought, from just reading the profile of the company, that the chart since the IPO would look like the above.

I identify two major phases in CNXT, the run up of the technology bubble and the subsequent collapse. This is one of those stocks that never recovered ...

Fundamentally the company had $2.1 B in revenues in 2000 and just $970 M in 2006, so business declined over the years (even though it was up from a 2003 low of $599 M in revenues).

The company lost $2.4 B over the last five years, gee

2.1. Short term chart



Phase 1 happened because CNXT posted three quarters in a row of positive EBITDA (starting in Q2 2006) and even managed to show a very small positive net income number in Q4 2006.

It looked like the company was turning profitable ... but this was a turnaround that failed and Q1 and Q2 in 2007 showed sharp losses, again. So the stock came off to where it was before the run up.

Analysts expect revenues to decline and more losses in 2007 and 2008:



And who am I to say it's going to be different? Or, putting it in another way, what do I know about the company that gives me confidence that analysts' negative outlook is wrong? I know nothing.

The stock recently got a boost because the company changed its CFO to one which previously worked with FSL, which was acquired by BlackStone, so I guess that fueled some speculation she'll come to work on a sale of the company. This is hardly a sound fundamental reason to start an advance phase.

3. Conclusion

CNXT is currently a $670 M market cap company which lost $2.4 B over the past five years. Revenues are expected to shrink after a rebound in 2005 and 2006, to about 35% of what they were back in 2000, so this company isn't able to grow.

Even if it somehow turns profitable, I believe its margins will always be slim.

I guess shappyfish88 owns the stock, or is interested in it, so I hope I'm wrong, but I don't see anything that attracts me in CNXT.

Tomorrow I'll write about DUK on soxguy's request.

[la-onda]

hi David,
please check IMOS again:
http://www.3stocksonfire.org/trading/index.php?board=2.0
(updated informations: http://www.3stocksonfire.org/trading/index.php?board=2.0 )

AKNS now on the Nasdaq!
please check AKNS instead of IMOS!
http://www.3stocksonfire.org/trading/index.php?topic=10250.msg106017#msg106017

thanks
Oliver

[kslifka]

WRLS...looks very attractive with latest guidance update.

[nicknite20]

David,
Could you pls relook at LAYN? Its done pretty nicely for me since we last discussed it..i think it goes higher..

http://www.3stocksonfire.org/trading/index.php?topic=9240.0


Thanks,
Nick

[johnle1024]

Hi David don't post here too often but always checking for stocks... Great job on your analysis, if you could can you do an analysis on CREE ? thanks