New Game Makes THQ a Winner

Plus, the media buzz is about to get a bit louder now that the game is finalized and full write-ups come in. The game just received its first review from PC Gamer magazine, which rated it a 91 out of 100 and featured it on the cover of its March issue, which just hit the stands. A positive review does not guarantee strong sales, but in general, well-reviewed games tend to do well and, at the very least, get gamers' attention.

Now according to what I've seen, analysts covering video-game stocks tend to pay more attention to console titles than PC titles, which is leading to an attractive opportunity in THQ shares, as Supreme Commander appears to be off most analysts' radar screens. But what's really interesting here is that analysts also largely ignored the aforementioned Company of Heroes title, despite it being a chart-topper at numerous retailers.

So for some reason, these RTS titles from THQ do not get analysts' attention. And unusually enough, in the same issue in which it positively reviewed Supreme Commander, PC Gamer actually named Company of Heroes its 2006 game of the year, though I won't attribute any metaphysical significance to this chain of events.

So here's the game plan. I believe THQ is good for a trade into the media buzz that Supreme Commander has the potential to generate, which could result in analysts getting on board and raising estimates. And if they don't get on board, then the estimates will be too low, giving THQ room to beat. Company of Heroes didn't get much love from analysts and ended up being a major contributor to THQ crushing estimates in the September quarter of last year.

It should be noted, however, that THQ will report full fiscal third-quarter results on Friday (the company positively preannounced on Jan. 11), which could create volatility in the stock should the company make any material announcements. So next week may be a better time to take action.

In addition, the company is involved in litigation with World Wrestling Entertainment (WWE - commentary - Cramer's Take), which is claiming that it is entitled to terminate THQ's WWE license, a big source of revenue for THQ. However, since this litigation is in early stages, it likely won't be a factor over the next couple of months. And in general, video-game stocks are very momentum-driven, and quarterly results are somewhat unpredictable. Nonetheless, the stars are lining up in an attractive way for Supreme Commander, and thus THQ. I see upside in the stock over the next couple of months as a result.

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In keeping with TSC's editorial policy, Michael Comeau doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Comeau is a research analyst at TheStreet.com. In this role he performs stock analysis for TheStreet.com Breakout Stocks, and is also a regular contributor to RealMoney.com. Prior to his arrival at TSC in June 2004, Comeau worked as a Consultant to Toyota Motor North America, performing in-depth research on automotive industry issues, primarily in the areas of alternative engine technologies, competitive analysis and macroeconomics. His primary market interests include consumer technology, specialty retail, and small-caps. Comeau received a bachelor's degree in Finance from Brooklyn College, and has completed Level 1 of the CFA program.. He appreciates your feedback; click here to send him an emai