For the most part I do not invest in equities in the BRICs as I do not feel they offer the transparency or accounting standards necessary to avoid any sort of shenanigans. I mainly play emerging markets by buying multinationals that will benefit from the growth in these developing countries.
I am going to make an exception to this rule by initiating a small position in Giant Interactive (GA) for several reasons. This $5 stock has paid out almost $4 in dividends over the last four years (the best trust but verify device) and its regular payout is now 30 cents a year. In addition, it is covered by a dozen analysts which gives me a great deal more confidence that an equity that is covered by one or two analysts. Finally, it just reported a great quarter.
Key highlights from GA's earnings report:
- EPS came in 4 cents a share above consensus expectations.
- Revenues came in at $86.4mm, $2mm over consensus and up more than 18% Y/Y.
- Active Paying Accounts for online games was 2,241,000, up 7.4% Y/Y.
- Average Revenue Per User for online games was up 9.6% Y/Y.
Giant Interactive Group develops and operates online games in the People's Republic of China. It primarily offers multiplayer online role playing games. The company operates 11 games, including 9 multiplayer online games.
4 additional reasons GA is a solid value, growth and income pick at under $5 a share:
- The stock yields almost 6% and has a solid balance sheet with over $300mm in net cash on its books (approximately 25% of market capitalization)
- GA is selling for just 6x forward earnings, a steep discount to its five year average (11.7).
- The company should grow revenues by almost 20% in FY2012 and analysts have a consensus 15% sales increase pegged for FY2013. The stock sells for a cheap five year projected PEG (.51) as well.
- The company has easily beat earnings estimates six of the last seven quarters and it has doubled its operating cash flow over the last three years.