Majesco Entertainment Has Ample Room To Continue Its Run

| About: Majesco Entertainment (COOL)

It was a rather calm investing year for me in 2011. After looking at my yearly statement, I realized I only made one purchase for the year. Shortly before Christmas I purchased shares of video game maker Majesco Entertainment (NASDAQ:COOL).

Now I know what you’re thinking, why did I not make more trades on the year? Despite constantly recommending shares of companies I follow, I did not have the time or ever pull the trigger on any of my recommendations. My job keeps me working long hours and away from a computer during market trading. I place limit orders sometimes while I am working, but enjoy being home and able to see when I buy stock.

Even though some financial analysts have recommended keeping a portion of assets in cash, I decided against it for the new year. With the small amount of cash that was sitting in my account I chose to make one last trade before Christmas. My decision this time around centered around two companies I had recommended in the prior two months: Majesco Entertainment and Zynga (NASDAQ:ZNGA).

Prior to its highly anticipated initial public offering, I discussed 5 positives and 5 negatives in an investment in Zynga . In the article I made a bullish case for shares based on five key points:

  1. Users' Activity
  2. Growing Revenue
  3. Number One Market Position
  4. Acquisitions
  5. Addictive, Easy-to-Play Games

Shares priced at $10 the night before the company when public, and I believed they would shoot up to $18 to $20 the following morning when Zynga made its public market debut. I called a target price of $15 and under as a good entry point. When shares traded for around $10 the opening day they immediately came on my radar, and I almost pulled the trigger several times, but ultimately didn't. Instead, in December I made a small purchase of shares in Majesco Entertainment.

Majesco Entertainment is a small video game maker that develops games for platforms, handheld devices, and social networks. The company is best known now for its two Zumba Fitness motion-capture games. The key reason I bought shares of the company centers around these two successful games and many of the points I brought up in my previous article: Zumba Fitness Craze Makes Majesco Entertainment Stock Look Undervalued.

Zumba Fitness was released in November 2010 for the Nintendo Wii, Sony Playstation 3, and Microsoft XBOX 360. The game capitalized on two trending ideas: motion-captured gaming and the Zumba fitness craze. Zumba is a type of workout that combines dancing with aerobics. Majesco developed the game to give video gamers and casual players an opportunity to work out at home with the help of the game. The first game has sold over 5.5 million copies around the world across all platforms. International sales of the game have been strong, with over 2 million copies sold, and are handled by other gaming companies who pay Majesco a royalty.

The follow-up, Zumba Fitness 2, was released November 17, 2011 for the Nintendo Wii. The game allowed players to track calories burned directly on screen while working out. The game has sold over 600,000 copies after seven weeks on the market. The game still is receiving strong sales and should cross the million copy mark soon.

In February the Zumba Fitness 2 game will be released for XBOX 360 under the Zumba Fitness Rush name. The game has traditional sold better on the Nintendo Wii platform, but XBOX 360 has surpassed Wii’s dominance, and the Kinect games are gaining support from gamers.

Top Reasons to Buy Majesco Entertainment Shares:

1. Strong sales of Zumba Fitness and Zumba Fitness 2. A quick look at Amazon’s Top 100 Video Games shows the following: #6 Zumba Fitness 2 (Wii), #8 Zumba Fitness (XBOX 360), #12 Zumba Fitness (Wii).

2. Release of Zumba Rush in February. XBox has outsold the Wii for the first time, and I am curious to see how the sequel sells once it loses its Nintendo Wii exclusivity.

3. Acquisition Target. As an Activision Blizzard (NASDAQ:ATVI) shareholder I am always looking for smaller video game companies that might be acquired. I think Activision or Electronic Arts (NASDAQ:EA) could easily acquire Majesco, trim out some of the lower selling games and focus on the key franchises, like Cooking Mama, Zumba Fitness, and Jillian Michaels. For Activision, the company could provide a nice replacement to the Guitar Hero franchise, which was discontinued.

4. Three Straight Quarterly Earnings Beats. The last three quarters have been great for the company as they bested analysts’ targets. Majesco surprised earnings by 82%, 86%, and 250% for the last three quarters, respectively. The last quarter analysts actually forecast a loss of $0.02 per share but were surprised with a $0.03 profit per share reported.

5. Price to Earnings. Price to earnings is a hard number to look at forsub-$5 stocks. However, with a share price of $2.93 and predicted earnings for 2011 of $0.40, the price to earnings ratio is a small 7.3. For 2012’s earnings of $0.45, the ratio drops to 6.5.

6. Analyst Activity. Today Rodman & Renshaw initiated coverage of the stock with a Market Outperform rating. The last analyst activity was in October, when Northland Securities initiated coverage at Outperform. This positive analyst coverage indicates that there is still room for shares to move upward in 2012.

7. Balance Sheet. At last check, Majesco was sitting on almost $20 million in cash, which is good for around $0.50 a share. Long term debt is listed at $0 for the company.

8. Facebook Games. The newest released Facebook games are: Cooking Mama (220,000 monthly users) and Parking Wars 2 (30,000 monthly users).

Majesco Entertainment has been in the video game business since 1986. The company’s main success has been found with its Cooking Mama series for Nintendo DS and now the Zumba Fitness games. The company continues to churn out plenty of games that can sell 100,000 copies, but needs to do a better job of launching real blockbuster games.

Shares were up 216% in 2011, and I think they have room to run. In my last article I said I thought shares could see $10 or get bought out before then. I believe 2012 will be a strong year for Majesco Entertainment, and am looking forward to prospering thanks to my Christmas present.

Sales figures are from

Disclosure: I am long ATVI, COOL.