Updates on 3 of my Undiscovered Value Stocks

Gravity Ragnarok 1 Updated and a New Game Added

I’ve been following the activities of GRVY closely lately. I have all my google alerts set up to keep on top of news, updates and any further information about Ragnarok 2.

In the meantime, GRVY has released an updated version of Ragnarok 1 and expanded game availability to the majority of Europe.

GRVY has also become a major shareholder in another Korean game development company named Barunson Interactive. The purchase includes the rights to the game title by the name of Dragon Saga which is now live.

The latest update and Dragon Saga should allow GRVY to keep profits and cash flow break even during the RO2 development and launch period.

GRVY Counter Argument

A counter opinion from a commenter on Seeking Alpha that I found insightful and something to think about.

The problem with RO2 is that it’s a sequel, first of all, to an old game. To get some perspective on what sort of implications this has, imagine if a film maker made a sequel to an incredibly popular film from the 60s. It probably won’t attract young viewers, and will mostly target older viewers who loved the original and are looking for a nostalgic extension. You would probably expect, too, that people would be really concerned with how much it matched the original– after all, it’s really nostalgic for them so they have high standards about keeping ‘the same feeling’. You see that exact same thing about RO2. Just look up RO2 gameplay videos on youtube and read the comments. It’s pretty much nothing but page after page about how RO2 “isn’t the same feeling” as RO1 and how it has disappointed them. Just like how you might expect a movie of the same caliber to flop if it doesn’t run well with the one community that would be excited about it, there might be good reason in this alone to expect a RO2 flop.

To be fair to the above point though, there are cases where sequels to very old games that were significantly different have done really well. A particularly salient example is Starcraft 2 (a game of ATVI ). A lot of SC2 success though has to do with Blizzard’s reputation as a company, their monopoly in RTS (the type of game SC2 is), and their revamping of it to appeal to new users. Also, they did strive to keep some of the essential parts to attract hardcore old school gamers. Last but not least, they promoted SC2 as a highly competitive game with a tournament that boasts a $500,000 cash prize– needless to say, this attracted people too.

Also it should be kept in mind that when RO1 existed and enjoyed its popularity so much, the MMO industry was much, much less competitive than it is now. Back in those days RO1 was one of the few good options out there, especially of those available in Korea. Now there is such a massive range of MMOs to choose from, with some enjoying enormous popularity such as World of Warcraft.

Because MMOs are games that require enormous amounts of time, it is unusual for someone to play more than one MMO. This being the case, for an MMO to succeed people really have to prefer it to all other existing MMOs; this has become an extraordinarily tall order.

Mastech Holdings Not Feeling the Love

MHH certainly doesn’t receive much love. Slight improvements in the quarter showed that the economy is still in difficult times but the company is wading through the mess just fine.

Revenues up, demand for IT staff growing with $1.60 of the $3.30 stock price in cash and no long term debt.

Not much to worry about really. I must admit though that the value of MHH won’t be realized for a while with the economy in its current state.

With all the repositioning and resizing I have been doing to my portfolio this year, MHH has become my smallest position.

Gulf Spill Uncertainty and Fear Passing for Bolt Technology

BOLT reported strong 1st quarter figures and with the deepwater mess quieting down, the stock price has also bounced back up to previous levels. Absolutely nothing wrong with the company fundamentally.

No word of any acquisitions with the cash load BOLT possesses.

Still worth $13-$14 at a minimum. I’ll let time and Mr Market sort things out.



  • Thomas Bradley

    BOLT is in the energy area and will feel the effects of over capacity until inventories are draw down. Why not look at a company that has great earnings, a market leader int he gaming industry, ATVI. MHH is a market leader in it’s area???? Is it under priced??????

  • I’m going to do a more detailed writeup on ARO in the near future, but here’s a preview of the information:

    2 things:
    1. Credit for bringing this idea to my attention goes to Roark, Rearden, and Hamot Capital Management, I simply dug into it for myself, but the research is really their own
    2. SSS = Same Store Sales. If you sell $10 January 2009, but $12 January 2010, that’s a 20% SSS increase

    Long side:
    – Positive SSS leading up to recession, through it, and then following it
    – Look at YOY B/S data, they’ve grown revenue 40% over past 2 years, however inventory has stayed flat (absolutely, has fallen relative to revenue), they’re managing that really well
    – Cash Flow from ops lines up with very well with income statement – earnings are likely of good quality
    – Cheap on metrics, 8x 2010 FCF, 10x P/E, etc., versus ANF@ 16x 2010 FCF, P/E on 2010 data is misleading because earnings got killed (Potentially long ARO, short a basket of the peer group)
    – Very clean balance sheet, no long term debt or anything like that, plenty of cash on hand. Metrics improve to 7x FCF and 8-9x Earnings for ARO if you back out their significant cash position

    Short case, why it’s so cheap:
    – Analysts believe people traded down to ARO from ANF and other brands, they will be going back to their brands as soon as consumer incomes rise
    – Analysts frequently cite ARO’s significant discounting as something that will erode margins
    – Not an exciting situation, company is nearing maturity. 900 stores in existence, management believes the optimal amount will be 1000-1100

    My counters:
    1. If you buy it at a cheap price, it will be priced for both short cases and so if reality falls short of those issues even a little bit, we’ll see an upside. If any of the consumers now like ARO and enjoy wearing it, it’s possible that they will stay with the brand or split their shopping between the two stores. I don’t think they’ll remove the store entirely.
    2. They’ve had significant entire-store discounts for a while, it’s what drives people there. It’s a part of their strategy to have everything marked down. The numbers we see already have this effect for a long time, it’s nothing new, but yes, compared to competitors, they are the ones still “discounting.” I believe it’s mostly marketing – raise the MSRP, say store is 50% off, etc.
    2a (counter to 2) – Their profit margins have been steadily improving for quite a while, that’s going to end at some point, so those gains will not continue on a YOY basis. I would assume they face same sourcing pressures that others deal with though, so their cost of manufacturing and sourcing the clothing should move with the market. (Again, go long ARO and short a basket to hedge out these risks)
    3. Management actually understands capital allocation and that growing revenue for revenue’s sake is not beneficial? This is great, I’d love if every company was this good at it.

  • Jae,

    I just had lunch with Mastech’s CEO today. There is nothing to worry about. With time, we are going to be rewarded. I will write something up on my blog about our conversation or I will try to interview him on valueinvestingtv.tv.

  • @ Thomas,
    I prefer to look for hidden gems. Things that the majority of the market won’t consider looking for.

    @ Ankit,
    I did look at ARO before when I was invested in AEO. At the time ARO was also substantially cheaper to the bigger competitors. But with retail investments, playing the waiting game is definitely key. Not sure about the whole theory about people downgrading from ANF to ARO.
    Sounds stupid to me if I was a teenager.

    @ Mariusz,
    Any additional info on the company that you can share?

  • If you like the oils, look at NE.
    9B Mkt Cap
    11B EntValue
    1B net income
    36 net margin
    16 ROE

Ready to try Old School Value?