Poor Christmas sales of the computer games Alien Resurrection, Aladdin and the Emperor's New Groove as well as a delays in signing deals with publishing companies yesterday forced software developer Argonaut Games to issue a profits warning for the year to July.

Company broker Beeson Gregory now expects the company to go into the red by £3m, against an earlier forecast of £800,000 pretax profits. More communication with the City about the unlikelihood of selling the new games might have alleviated the downside but yesterday the shares crashed to 24p yet ended off 2p at 29p.

The recovery was boosted by Beeson's new forecast for the current year, to July 2002, when profits are expected to hit £4m, double original forecasts and buoyed by the imminent sale of three more games titles to large electronic publishing houses - for greater sums than originally expected.

Argonaut would typically receive £1.5 m for games such as Malice and Kung Fu Story; the three in the pipeline are likely to net £2.5m-3m apiece.

The company's shares were also bolstered by the appointment of former Virgin Interactive Entertainment director Joss Ellis, who will inject publishing and games development experience into the company which floated 19 months ago at 90p and 16 months ago was worth 105p a share.

Argonaut has high hopes for the games version of blockbuster novel Harry Potter and the Philosopher's Stone, and some reckon that the 2002 estimates may be shy given the cult status of the books and imminent release of the movie.

Argonaut is financially solid, with some £15m in the bank. The company raised £18m as it took a public listing. It has an enterprise value of £10m and its price rating of three times earnings for 2002 is substantially below that of sector rival Eidos with a 17 times rating. A speculative buy.