China Digital TV May Appeal to Aggressive Investors as Chart Shows Strength

| About: China Digital (STVVY)
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By Paul Goodwin

Back in February 21, 2008, I wrote about an interesting stock for Cabot Wealth Advisory. The company was China Digital TV (STV), a maker of hardware and software that control access to digital content on Chinese televisions.

Here’s what I wrote at that time. You can read the whole write-up here.

I wrote about the company’s great revenue and earnings performance and then said:

The problem is that none of this strong performance has yet shown up in the stock’s chart. STV nominally came public at 16 in October 2007 (although it never traded below 26 at its IPO) and then rose as high as 55 in a week. But the end of the year was a rough patch for many stocks, and STV dropped as low as 19 in January before a February rally that has lifted it into the mid-20s.

I didn’t recommend putting any money into STV then, but the story was hugely attractive, and I’m intrigued that the company’s chart has improved significantly.

On the day I wrote about STV, the stock closed at 23, but was in a pronounced downtrend. It continued to decline, finally bottoming at 4 in December, along with the rest of the global market.

STV has now recovered significantly, but it’s not going to be an easy stock to handle. In May, it blasted off from 8 to 12 in just a couple of days, then gapped right back down to 8. Since then it’s been much better behaved, rising in an orderly fashion from 8 to 9 with a few good-volume up days to show that institutions may be in the buying mix.

I know that there are other China advisors who are teasing STV as the next big thing, holding out the promise of huge gains. And it’s possible they’re right. But you should keep in mind that this is a high-volatility issue (both low-priced and thinly traded), and can jump down just as easily as it jumps up.

As I also wrote in February 2008, “STV is a good stock to have on your watch list at this point, a fascinating opportunity with huge potential. It’s also a good reminder that story and numbers aren’t enough … you also need the chart.”

With the chart finally showing some strength, aggressive investors may enjoy taking a run at this hot issue.

Disclosure: No position