Mad Catz Reinvents The Wheel

This morning Mad Catz Interactive (MCZ) announced the release of its Force Feedback Racing Wheel, an advanced racing controller for Xbox One.

Boasting genuine suede and 'luxury' aluminum, the wheel is designed to offer a more authentic gaming experience, and even comes with fully adjustable gas and brake pedals.

Intrigued by this emphasis on more high-end gaming accessories, we decided to compare Mad Catz to industry peers, to see who has the potential to develop products like this in the near future. 

Among companies that sell accessories for video games and other electronics, we looked for stocks that appear undervalued relative to their cash flows. This is indicated by high ratios of levered free cash flow/enterprise value (LFCF/EV). Levered free cash flow plays an important role in paying for dividends and further expansion of the business.

Levered free cash flow is the free cash flow after deducting interest payments on outstanding debt. Enterprise value is the sum of the firm's value from all ownership sources: market cap, outstanding debt, and preferred shares. When companies have ratios of LFCF/EV in excess of 10%, it may indicate that the company as a whole is being undervalued.

This ratio gives us the money that the business can use to grow, and potentially spend on the development of future products like flashy steering wheels.

We then narrowed down our list by screening these stocks to see who has been rallying, looking specifically for those trading above their 20-day, 50-day, and 200-day moving averages (MA). This indicates that these stocks have strong upward momentum.

Mad Catz remained, along with two bigger companies, Logitech (LOGI) and Skullcandy (SKUL)

 

Dig Deeper:  Compare analyst ratings to annual returns  for stocks mentioned.

Click on the image below to see analyst ratings over time. Sourced from Zacks Investment Research. 

Do you think Mad Catz has an edge over its competitors? Use the list below as a starting point for your own analysis. 

1. Mad Catz Interactive Inc. ( MCZ): Designs, manufactures, markets, sells, and distributes accessories for videogame platforms, personal computers (PC) and Mac, smart phones, and other smart devices. Market cap at $44.18M, most recent closing price at $0.65.

20-day MA: 20.31%

50-day MA: 33.04%

200-day MA: 41.33% 

Levered free cash flow at $6.68M vs. enterprise value at $45.18M (implies a LFCF/EV ratio at 14.79%). 

 

2. Logitech International SA ( LOGI): Designs, manufactures, and markets hardware and software products that enable digital navigation, music and video entertainment, gaming, social networking, audio, and video communication over the Internet, video security, and home-entertainment control. Market cap at $1.16B, most recent closing price at $7.26.

20-day MA: 0.63%

50-day MA: 3.86%

200-day MA: 3.17% 

Levered free cash flow at $84.55M vs. enterprise value at $826.90M (implies a LFCF/EV ratio at 10.22%).

 

3. Skullcandy, Inc. ( SKUL): Develops and distributes headphones and other audio accessories to retailers in the United States and to distributors in various countries worldwide. Market cap at $150.24M, most recent closing price at $5.42.

20-day MA: -0.51%

50-day MA: -1.31%

200-day MA: -14.25% 

Levered free cash flow at $24.68M vs. enterprise value at $123.27M (implies a LFCF/EV ratio at 20.02%).

 

 

( List compiled by Emily Smykal, Kapitall editor. LFCF/EV data sourced from Yahoo! Finance, all other data sourced from Finviz.)

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