MCZ – Initiation of Buy Recommendation

By: ispeculatornew
Date posted: 12.13.2006 (12:00 am) | Write a Comment  (0 Comments)

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MCZ- Mad Catz Interactive (American Stock Exchange) (Closing Price $0.65)

Mad Catz (ticker: MCZ) is a speculative play on the release of the next generation game consoles (the XBOX 360 and the Playstation 3). This company has improving fundamentals and will benefit from the hype surrounding the new game consoles.

Mad Catz sell peripherals such as controllers, racing wheels, and console accessories. Consumers will buy these products when they purchase their new consoles. The initial release of the consoles will help increase sales for MCZ but the biggest benefit should come after a year or so after the consoles have built a consumer base.

Mad Catz has reported two consecutive quarters of sales growth and sales will increase next quarter with the onset of the holiday season. Last quarter MCZ basically broke even from a profit standpoint but I expect their earnings to increase along with sales next quarter.

In the past year MCZ had an inventory build up of low margin products but they have been getting rid of these products and consequently their gross margins and profits have improved. Going forward this should translate into higher earnings. Mad Catz currently trades below book value and I think its current share price is a bargain. I would start to accumulate at this price.

Mad Catz, like all retailers, is a cyclical company. The summer months are usually slow and the biggest increase in sales and profits comes during the holiday season. One strategy would be to buy MCZ now and sell during the slow summer months. You could also buy now and plan on selling after the holiday season in 2007 (with the intention of getting a long term capital gain).

Disclosure: I currently own shares of MCZ.

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