ATAR Recommendation
 

ATAR (ATARI)is trading quite low for a stock in a very strong industry. ATAR currently at about $3.33 I believe is undervalued. Atari is the publisher of UT2004 and as the first round of sales numbers comes through the stock should push above $4 and even reach close to $5. The stock not too long ago was trading in the $4-5 range.

My support for this is based on three things,

New CFO will be annouced
Industry Sector very strong (ATAR will follow other sector leaders such as ATVI and THQI)
Sell through for UT2004 this year should be very high (2 Million Units+)

What do you think? My buy in Price for ATAR averaged out to 3.55 about a month ago as I bought it on its way down.

I expect to sell out at around $4.50-$5.50

Well I guess it depends on whether or not you believe the estimates. The company was projected to simply break even in the fiscal year that ends in March of this year. If you look at forward estimates, probably a better metric at this point in their year, they are forecasted to earn about 0.25 per share. Not too bad. That would put the company on a forward multiple of 13x. By far the lowest in the space, which is about 25x.

When looking at projected cash flow Atari looks pretty bad. It is projected to have negative cash flows of about 0.10 per share, not too bad, but the estimates have been getting revised downward pretty consistently over the past year. The other two companies, Ele Arts and Activision, both trade at very rich cash flow multiples.

In the final analysis the comapny is still considered a turn around and as such carries more risk than most. If they have a hit game on their hands it can drive the price up quite a bit, mostly on hype. However, looking at the forward multiple it looks like the market is banking on the game being a hit in estimates but investors are still in "show me" mode. If the numbers do come through and the stock is re-rated in line with the rest of the industry you could do well. At this point it looks like an okay bet to take. I wouldn't put too much on it and definately realize the risks - execution at a turn around and will games sales come through strong and in a timely way. If so you'll do well.