Giant Interactive Group Inc.
(
GA
) become a Zacks #1 Rank (Strong Buy) after reporting solid
third-quarter results last month, which included a positive
earnings surprise of 11.1%. Furthermore, this online game developer
and operator has a forward price-to-earnings (P/E) multiple of just
6.6, which makes it attractive for value investors.
Impressive Q3 Results
On November 13, Giant Interactive reported third-quarter earnings
of 20 cents per share, which was flat on a year-over-year basis but
better than the Zacks Consensus Estimate.
Revenue jumped 18.6% year over year to $86.0 million, which also
topped the Zacks Consensus Estimate. The year-over-year growth in
revenue was driven by strong performances from online games (up
18.0% year over year) and licensing revenue.
During the quarter, Active Paying Accounts ("APA") for online games
increased 7.4%, Average Concurrent Users ("ACU") advanced 4.9% and
Peak Concurrent Users ("PCU") improved 1.4%. Average Revenue per
User ("ARPU") for online games jumped 9.6% year over year to RMB238
($37.57 using currency exchange rate of $1= RMB0.15788 as of
September 30, 2012).
Giant Interactive expects fourth quarter 2012 results to improve
sequentially on the back of the micro-client version of the ZT 2
and World of XianXia games.
Earnings Estimates Move Higher
The Zacks Consensus Estimate for 2012 has jumped 6.7% to 80 cents
per share over the last 60 days, representing year-over-year growth
of 8.1%. The Zacks Consensus Estimate for 2013 advanced 4.9% to 85
cents over the same period, reflecting a year-over-year increase of
6.8%.
Reasonable Valuation
In addition to a low P/E, the stock looks attractive with respect
to its price-to-book (P/B) multiple of 2.5. A P/E below 15.0 and a
P/B ratio less than 3.0 generally suggest a value stock.
Additionally, Giant Interactive's PEG ratio of just 0.47 indicates
that the stock is reasonably valued given the estimated growth of
13.8%.
Moreover, Giant Interactive's Return on Equity (ROE) of 42.6%,
Return on Investment (ROI) of 42.6% and Return on Asset (ROA) of
30.9% are better than the industry averages.
Historically, share prices have shown positive correlation to
earnings growth. The uptrend in the 2012 earnings estimate should
encourage investors as the stock is likely to follow the trend.
Shanghai based Giant Interactive primarily develops and operates
massively multiplayer online role playing games (MMORPGs) in China.
Currently, the company operates 11 online games, out of which 9 are
self-developed. Its oldest game - ZT Online - was introduced in
January 2006. This $1.23 billion company earned revenues of $284.8
million in 2011.
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