The Q3'13 earnings are going to be released on October 31. That will be an important event which will determine the short term trend of the stock. In Q2'13, the company had exceeded analyst expectations, and hence the stock was able to breakout to new highs. The revenues had increased by 7% on a yoy basis to $2.48 billion. The net loss was $93 million. The stock has doubled over the last one year, and volumes have been consistent recently. The sharp rise makes it important for the company to post good numbers. Negative surprises can lead to some profit booking. Exposure to earnings is always risky so one needs to play based on the risk appetite. If it is able to exceed analyst expectations, then the stock can go much higher. This is because it is at multi-year highs, and there is not much resistance on the way. Fundamentally, it has shown some improvements in the recent quarters, though it is still far away from profitability on a net basis. The level of debt is extremely high which increases the risk. The debt servicing costs make it extremely difficult for the company to improve the margins. The company had $13.11 billion debt on June 30, and the cash was $1.38 billion. This indicates an imbalance because the ttm revenues are $9 billion, and the net loss is $1.49 billion. Comparing with peers can provide some solace, but high levels of debt are always dangerous. Future investments are likely to add the pressure. In another development, a recent ruling in the patent infringement case filed by MGT Capital Investments (MGT) was largely positive for MGT, but it stayed proceedings against MGM pending litigation against some other defendants. A recent SA article mentions that MGM has other drivers which are likely to help the company improve the top line over the medium term.
