Giant Interactive: Time To Buy This $5 Stock With The Almost 6% Yield

| About: Giant Interactive (GA)

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 (NYSE: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:

  1. 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)
  2. GA is selling for just 6x forward earnings, a steep discount to its five year average (11.7).
  3. 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.
  4. 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.

Disclosure: I am long GA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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