MCZ

[David Randolph]

1. Introduction

I made a brief analysis on MCZ yesterday at the 3 Stocks on Fire Portfolio Message Board, which you can find on this link.

My first impression was positive.  

2. Profile

Mad Catz is a worldwide leader of innovative peripherals in the interactive entertainment industry. Mad Catz designs and markets a full range of accessories for video game systems and publishes video game software, including the industry leading GameShark brand of video game enhancements. Mad Catz has distribution through most leading retailers offering interactive entertainment products. Mad Catz has its operating headquarters in San Diego, California and offices in Canada, Europe and Asia. For additional information go to www.madcatz.com.

3. Technical Analysis
3.1. All History Chart



MCZ is coming up from a very low base as you can see on the all history chart.

3.2. Medium Term Chart



You can see the golden cross on this medium term chart and the trend is bullish now.

3.3. Short Term Chart



There was a big gap up yesterday (MCZ opened 17% higher), after the company reported better than expected results, but then the stock pulled back to close at $0.71. That gap can be closed at $0.66 or not, it's very hard to know and I guess it doesn't matter much for the long term outcome of this investment.

4. Fundamental Analysis
4.1. Number of Shares Outstanding + Market Cap



The number of outstanding shares has remained steady at 54 million shares for several years. MCZ doesn't have the intention of diluting shareholder's value. The current market cap is 54,244,383*$0.71 = $38.51 M.

4.2. Long Term Debt + Current Ratio



MCZ's main problem has been the weak balance sheet, despite not showing any long term debt, because the current ratio, that is, the ratio between current assets and current liabilities, is low, at 1.34 now.

But management is focused on improving the balance sheet as you can read on yesterday's press release, and it already made some improvements.

What always worries me when I see a weak balance sheet is the potential for dilution. But MCZ has had a weak balance sheet for years and they didn't dilute shareholder's value.

4.3. Revenues + Gross Margin



Sales are declining in fiscal 06 and 07 from previous years, but the latest quarter was really surprising due to the gross margin expansion. The graph above shows the yearly trends, but the October-December quarter was the best ever in terms of gross margin, at 28.7%, up from just 14.8% in the year ago quarter.

4.4. EPS + Net Profit Margin



There's strong seasonality in this business, with calendar 4th quarter always being the strongest. Anyway, this particular quarter showed improved net profit margin despite lower sales.

This tells me the company has been under intense restructuring and cost cutting efforts. After this diet, if sales pick up just a bit of steam, MCZ can show nice profits with investors.

4.5. Recent News

Tue, Nov 21, 2006
• Mad Catz Acquires INAIR Personal Sound Audio Technology Intellectual Property
Business Wire (Tue, Nov 21)

• Mad Catz Reports Fiscal 2007 Third Quarter Basic and Diluted EPS of $0.07
Business Wire (Tue, Feb 13)

5. General Overview

I like the part of cost cutting and improved balance sheet, but growth is also needed to bolster a share price.

The first press release just above shows a real possibility for strong growth if that technology really does what the company claims. And it only cost $126 K or so. In fact the current bull run started when that news was announced, in November 21st, 2006.

The stock will be supported by the expectation of those innovative products (and because valuation in terms of price to sales ratio is really low).

Overall I see safety in numbers and existing business and big potential in new products announcements and sales.

6. Trading Plan

Buy 6.66% of capital in MCZ shares for the Main Portfolio.

[Terliso]

Wow! nice pick..I just noticed this pick right now, how come it's so quiet here?

MCZ broke the the 50sma in the weekly, and it's coming up to penetrate the 200sma & 200ema (weekly).

Applaud for the pick!

[Terliso]

Right on!... nice closed for end of the week

[David Randolph]

Thanks for your technical remarks on MCZ Terilso

Indeed, that gap up on Wednesday was a breakaway gap after the 4th quarter earnings release. The trend is definitely bullish now.

I've been searching and searching through Google but can't find anything about INAIR Personal Sound Technology or its inventor, Ken Wright.

Let me copy paste some of the highlights from the November 21st, 2006 press release:

«SAN DIEGO--(BUSINESS WIRE)--Mad Catz Interactive, Inc. (AMEX/TSE: MCZ), a leading third party video game accessory provider, today announced the acquisition of the INAIR Personal Sound Technology - a revolutionary breakthrough in the headphone listening experience. As part of the acquisition of the INAIR IP, Mad Catz also brings INAIR's inventor, Ken Wright, to Mad Catz' management team.»

«"We are very excited about our acquisition of the INAIR Personal Sound Technology IP," said Darren Richardson, President and CEO of Mad Catz. "This new technology allows users to have a high-quality digital listening experience while still interacting comfortably with their environment. The designer earpiece can be adapted to be either unobtrusive or more conspicuously branded as a stylish status symbol. Given the number of digital audio devices in the marketplace and the range of possibilities for branding, co-marketing and cross-promotion, the INAIR Personal Sound Technology opens up a broad realm of potential new revenue streams."»

«Mad Catz is currently planning a range of products using the INAIR Personal Sound Technology to address a wide array of audio devices, including iPod, Zune, cell phone, and other digital media devices. The INAIR Personal Sound Technology allows users to enjoy their favorite music and still interact in social settings, play sports, bicycle, jog or even drive a car. The INAIR Personal Sound Technology also has the ancillary benefit of reducing the damage that can be caused by standard headphones that project sound directly into the ear canal.»

«The INAIR Personal Sound Technology is currently in the patenting process and the Company plans to further protect this unique technology through a range of further patents, copyrights and trademarks.

Mad Catz plans to release its first product offerings using the INAIR Personal Sound Technology in calendar 2007.»

Of course, this alone wouldn't make me buy the stock, but this potential coupled with a very attractive valuation looked like a sure thing to me, especially after the stellar 4th quarter results (stellar in net profit margin terms, showing the company successfully went through serious cost cutting efforts).

I guess we'll just have to wait to see how these marvelous products will look like. In the meantime I'll comfortably continue holding MCZ due to a very attractive valuation, as you can read on my initial analysis.

[lancefur]

I have to admit I am lax in seeing this pick and wish I would gotten in on it before that nice rise. Up until a couple months ago, my full time living was based on selling on eBay and what I sold was video game and video game accessories. I have since sold that business but the accessories I sold where MadCatz items. They are solid "generic" versions of their sister brand name items.

Wish I would have gotten in on the ground floor of this but will buy tomorrow. Awesome pick!!!

[David Randolph]

I have to admit I am lax in seeing this pick and wish I would gotten in on it before that nice rise. Up until a couple months ago, my full time living was based on selling on eBay and what I sold was video game and video game accessories. I have since sold that business but the accessories I sold where MadCatz items. They are solid "generic" versions of their sister brand name items.

Wish I would have gotten in on the ground floor of this but will buy tomorrow. Awesome pick!!!

Thanks for the product review lancefur. You had nice company in buying MCZ shares yesterday, the CFO of the company also bought 50,000 shares, at $0.80 each.

I don't pay all that much attention to insider sales because that can be due to several motives not related with the company's financial performance, but when insiders buy, that can only mean good things for the future (of course they know the news they're about to release before we do - moreover, insiders don't usually buy to sell over the short term).

Anyway, it was just $40,000 so perhaps not all that significant.

Nothing changed from a technical or fundamental standpoint, I'll keep holding MCZ.

[David Randolph]

CFO buying 50,000 shares in the open market attracted some more people to buy MCZ. I don't see much downside and there's a lot of upside potential in MCZ shares. I'll keep holding it.

[David Randolph]

Someone at Yahoo posted an interesting thought. Kids want games to be more and more interactive. They already have wheels and shotguns (I guess), but they want more. They want a motorcycle to play a motocross game. They want gloves to give actual punches on a boxing game. MCZ is well positioned to provide those products, but maybe that's still way ahead into the future.

The thing driving the stock now is the November 21st ... hmm, the link no longer exists on Yahoo And not on MarketWatch either. And not on my news service either!

I'm going to e-mail the company. For tomorrow's update I want to listen the latest conference call to see if they talked about that promising Inair sound technology.

I'll continue holding MCZ.

(well, when I was going to send the e-mail to MCZ, I saw the news splashed on their website's homepage, so nothing to worry about, they're not walking away in silent from what was said in the past:

Mad Catz Acquires INAIR Personal Sound Audio Technology Intellectual Property)

[David Randolph]

MCZ has been asleep for 3 days now, I guess it is time to wake up and make another big white candlestick. The volume and Friday's candlestick tells me that is about to happen, maybe as soon as today.

Anyway, fundamentals are attractive as one can read on the rest of this thread, so I'll continue holding MCZ.

[David Randolph]

Here's a company that doesn't dilute shareholder's value at all, look at the Basic Weighted Average Shares line on its quarterly income statement.

I'll continue holding MCZ.

[David Randolph]

I'll take a small profit on MCZ due to the reasons described on this article.

[usedcasting]

Good Day for Mad Catz! 

uc.

http://biz.yahoo.com/bw/070511/20070511005113.html?.v=1

[rickjust]

i like it still,
in at 108
max

[usedcasting]

I know that MCZ historically has not done well this quarter but the gaming industry has been on fire. Hoping for better than expected results. Hallo3 has had great beta testing with a september release in stores. Mcz has now a piece of the action.

uc.

[rickjust]

mcz busting out on volume !
nice earnings run for next week.
max