MCZ – Mad Catz Interactive (American Stock Exchange) – (Closing Price – $0.82)
Mad Catz announced its fiscal third quarter 2008 results after the close yesterday and reported decent results. However, the stock sold off around 19% today because the company didn’t report an improvement in EPS and investors in the current market are extremely skittish and impatient.
Mad Catz came in with revenue of 34.27 million and earnings per share of 0.06. Revenue declined 6% year over year and EPS declined by a penny. The CEO blamed the shortfall in revenue on the strategy of eliminating less profitable product placements and focusing on higher margin products. While this strategy resulted in a higher gross profit margin, it didn’t translate into improved EPS. This is one reason investors decided to jump ship today.
I don’t think the focus to eliminate less profitable products was the only reason to blame for the decline in sales year over year. Consumers worried about a potential recession reigned in their spending this holiday season. This also factored into the sales shortfall. In spite of the weariness of consumers I still figured Mad Catz would post an increase in profits. However, Mad Catz reported big increases in sales/marketing expenses and G&A expenses. These unexpected increases resulted in the decrease in EPS year over year. (more…)
Sectors to Buy and Avoid
Small caps and technology stocks have taken quite a hit over the past few months and I think now is a good time to start looking for bargains in these sectors.
There has been a rotation out of these “riskier” stocks with the threat of a potential recession looming but the selloff has been overdone. Some companies that I follow have lost over fifty percent of their value from their highs last year in spite of improving fundamentals.
Financials and home builders have seen quite a rebound from the lows they made earlier this year but I think it is too early to say the worst is over for these companies. I think there is going to be further losses due to the risky lending practices that have taken place over the last few years. The housing market is no where near a bottom and foreclosures are going to continue to increase. I would avoid these stocks.
I would also avoid companies that rely on discretionary income such as retailers and restaurant stocks. Consumers are cutting back on their spending and I don’t see that changing in the near future.
Whatever you invest in you should be more concerned with the fundamentals of the company than the stock price. Over time a company’s stock price will ultimately follow the improvement or deterioration in fundamentals.