Marvel Enterprises (NYSE:MVL) wants to ensure that its Fantastic Four brand makes its way into the hearts and minds of video-game players. To that end, it has signed a deal with Mad Catz (AMEX:MCZ), a company that manufactures and distributes accessories for hardware platforms such as Sony's PlayStation 2 and Microsoft's Xbox. Mad Catz will certainly do a fine job of spreading the energy of the movie via items such as themed controllers and console skins; the website devoted to the product line indicates a launch date of July 8, right when the superheroes hit the theaters.
The deal was announced on Tuesday, and it was presumably the catalyst that sent Mad Catz's stock up more than 14% that day on significant volume; the closing price was $1.33. Yes, it is a low-single-digit equity, and that's what needs to be addressed here.
You won't get an argument from me that a stock's absolute price value should not be the only thing that matters. Yet when you are engaging shares that trade at extremely low bids, you are dealing with a very, very volatile situation most of the time (in timely fashion, I recently made this exact point to a reader who wrote me about Mad Catz after perusing a recent article of mine on video games). This is the realm of the speculators, and it is a deep, dark path indeed, one that can yield you a lot of gold if you're careful and quick (and, most of all, lucky) but that, more often than not, can easily destroy your savings in a single acidic moment.
There are probably a lot of individual investors out there who saw the action in Mad Catz and said, "Hey! I want in!" I'm not here to say that you won't be successful -- I can't, because I'm not gifted with the power to see a stock's future return. As a matter of fact, Mad Catz might indeed make you some money. A quick check of its ratings from the Investor's Business Daily resource shows a pretty decent earnings-per-share rank and some nice technical strength, but its sales/margins/return-on-equity grade is very weak. More research would be needed to see exactly what type of value it offers in the context of a growing video-game industry.
Still, I wouldn't be comfortable entering Mad Catz at this time. I own shares of Marvel, a Motley Fool Stock Advisor recommendation, and I have confidence in its ability to drive earnings by leveraging its large portfolio of famous characters in a diverse mix of potentially lucrative licensing arrangements. I'm confident that a box-office miss on the part of Fantastic Four won't destroy the longer-term prospects of the company. But what if the film fails and all the accessories carrying its logo collect dust on store shelves? Will the speculators indiscriminately dump shares of Mad Catz and send the price back toward a buck? It's extremely conceivable.
While I may have secretly fantasized that I had shares of Mad Catz sitting in my brokerage account, waiting to be sold so that I could reap the gold (believe me, I would have sold into the strength), I'm happy enough to be on the Marvel side of things. Mad Catz may see more fantastic action in the near future; before you decide to take the ride, be extremely cautious and make certain that your portfolio can handle the risk.
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Fool contributor Steven Mallas owns shares of Marvel Enterprises. The Motley Fool has a disclosure policy.
