) has been beating quarterly earnings estimates for years now. Most
recently, this Chinese provider of online video games topped the
Zacks Consensus Estimate by 6.82% in its third quarter. Changyou
also paid a special cash dividend of $1.9 per share.
With a forward price-to-earnings (P/E) multiple of just 5.4 and a
low price-to-book (P/B) multiple of 2.7, CYOU looks like a solid
Impressive Q3 for Changyou
On November 5, 2012, Changyou announced third quarter earnings of
$1.41 per share, comfortably surpassing the Zacks Consensus
Estimate by 9 cents and the year-ago quarter by 23 cents. Averaging
the past four quarters, this Zacks Rank #1 (Strong Buy) has
surprised by around 15%.
Revenue grew 29.0% year over year, as online game revenues and
online advertising revenues grew 30.0% and 32.0%, respectively.
Registered accounts shot up 41.0% year over year to 223.5 million.
The revenue result also surpassed the Zacks Consensus Estimate.
The upcoming launch of
(the beta testing of the online game started in November 2012) is
also a big positive.
is a popular first person shooter (FPS) game owned by Electronic
Arts Inc. (
). Changyou licensed the game to release its Chinese online
However, accounting for higher operating expenses to promote four
new online games and the release TLBB's (Tian Long Ba Bu - a
popular Chinese novel based game) expansion pack, Changyou guided
to a sequentially softer fourth quarter.
Over the past 90 days, the Zacks Consensus Estimate for 2012
advanced 3.6% to $5.21 per share, while the Zacks Consensus
Estimate for 2013 increased 3.3% to $5.67.
In addition to low P/E and P/B multiples, the stock looks
attractive even on a price-to-sales (P/S) basis. Its P/S multiple
is 2.7, much lower than the industry average of 4.4.
Moreover, Changyou's price/earnings growth (PEG) ratio of just 0.45
indicates that the stock is undervalued given the expected growth
rate of 12.0%. A P/E below 15.0, a P/S ratio less than 1.0 and a
P/B ratio under 3.0 generally suggests a value stock.
The return on equity (ROE) also looks attractive. It has a trailing
12-month ROE of 46.1% compared with the industry average of 22.7%.
Historically, share prices have shown a positive correlation to
earnings growth. Therefore, the current estimate trends indicate
that they are headed upward.
In 2003, Changyou started its operation as a business unit under
online games provider Sohu Inc. (
) but began to operate separately from 2007. Its flagship games are
TLBB, DDTank, Duke of Mount Deer; Licensed Blade Online, Blade
Hero 2, Da Hua Shui Hu, Zhong Hua Ying Xiong, Legend of Ancient
World, Immortal Faith,
San Jie Qi Yuan
. Its employee strength is 3,297 and the company has a market
capital of $1.61 billion.
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