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Winners:
 Radica Games
 Metal Management
 Trans World
    Entertainment
 Reliability Inc.
 Arterial Vascular
    Engineering
 Spire Corp.
 Jackson Hewitt
 MindSpring Ent.
Losers:
 ATC Communications
 Data Race Inc.
 Cellular Technical
    Services
 Boyds Wheels
 Manhattan Bagel
 TriTeal Corp.
 Specialty Finance
    Companies

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The Best and Worst Stocks of 1997
12/19/97

Winner -- Radica Games

(Nasdaq: RADAF) Price -- $17.25
Phone: (852) 693-2238
Move: Up 1037.18% through December 15, 1997
Radica Games Limited Message Board

The Company's Biz. Radica Games makes hand-held electronic and table top games. With Chief Operating Officer Jon Bengtson of casino operator Sands Regent (Nasdaq: SNDS) serving as Radica's Chairman, it was only natural that the gamemaker would break into the niche with casino-based games.

The company has since expanded its offerings and reeled in a big one with the release of the popular Bass Fishin' hand-held game. Radica, a Bermuda company headquartered in Hong Kong, has also introduced new bargain-priced games based on everything from submarine and tank battle simulations to tic-tac-toe and Yahtzee.

The Story. Back in 1995, a year after going public, Radica lived and died by its hand-held gambling games. The niche accounted for 95% of total revenues and, like a Blackjack gambler hitting on 20, it was a bust waiting to happen. The company lost $0.94 a share that year. Craps indeed!

In 1996 the company sought to diversify. The market for electronic kiddie games was saturated. Additionally, either grown-ups weren't interested in portable playthings, or the colorless, payoutless Radica gambling games were poor substitutes for the glitter of the genuine article.

So out rolled Sub Assault, Tank Attack, and, of course, Bass Fishin'. The latter, a game that simulates fishing, proved to be potent customer bait. With casino games then accounting for just 41% of sales and the bulk of the earlier titles just waiting to be sold off as aging inventory, the company turned around from a bet on black to a bet on red.

Despite the $0.15 a share showing in 1996, the stock started out 1997 at a paltry $1 11/16. It was penny stock fodder -- a speculative issue on which no respectable analyst bothered to tag projections.

It was a freshwater pity, because Bass Fishin' kept hooking up sales. The simulator's success opened up shelf space for Radica and the other games hopped aboard for the exposure. Nine months into fiscal 1997, earnings per share have soared to $0.58. The stock price also got on for the ride -- and this is no fish tale.

How Could You Have Found This Winner. Living in obscurity, another gutted initial public offering left for dead -- you certainly wouldn't have found this one recommended by Wall Street earlier this year. Truth be told, since The Motley Fool recommends staying away from penny stocks, the radar here would not have sounded until the stock crossed over $5 a share earlier this summer.

And that was a perfect time to consider the company. Back in June the company had just announced earnings of $0.23 a share for the first six months of fiscal 1997. That was significantly more than what the company had earned in the whole year in 1996. The explosive and seasonally strongest third quarter was yet to come, but with revenues, earnings, and gross margins expanding, it was only a matter of time before the stock got a little bloated as well.

The Future. Having learned its lessons from 1995, Radica is not content with letting Bass Fishin' toe the line forever. The company has cast the net out further. From OEM deals with Hasbro (AMEX: HAS) to producing a broader line of electronic versions of sport and traditional games, Radica is poised for growth. In October the company announced plans to double production capacity in 1998. With a large factory in China, where the Asian currency crisis just made manufacturing costs cheaper, supply will not be a problem.

Will demand be a problem? One of the new games for 1998, in a licensing agreement with NASCAR, will feature "precision steering for left or right hand players, sensory feedback vibrations, trigger finger acceleration, and high performance acceleration and braking." While one will never find a watered down new product press release, NASCAR Racer sounds like a winner.

If you want internal confidence, how about the fact that Bengston, the Sands Regent COO, left the casino company in December to devote his full attention to Radica? While that may not guarantee the stock a checkered flag for 1998, it at least is a sign of faith from a company that earned its pole position in 1997.

[Fool Articles: Daily Double, 10/30/97: Radica Games (Nasdaq: RADAF)]

-Rick Aristotle Munarriz (TMF Edible)

Next Article: Winner -- Metal Management

 

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