Buy 'em while they're down -- Shanda (SNDA)
**update** In case you needed a reminder, my purchase of a stock is generally an immediate contrary indicator -- I still think I got Shanda at a bargain for a long-term hold, but of course it began plummeting again just after I bought this position, and the price looks even better now, a day and a half later. That's the downside of being a long-term holder but an obsessive daily market and portfolio watcher, you are constantly reminded of the bargains you could have had and of the fact that your short-term prediction capabilities are virtually nil. Same thing has happened with almost all of my recent purchases, though most of them have already recovered to put at least the tops of their heads above the waterline. I repeat the mantra: long term, long term, long term.**
Just bought more Shanda Interactive Entertainment today, this stock fell out of it's nice little year-long trading range of $32-40 at the end of the summer and is now languishing at what appear to me to be true bargain levels.
Bought Shanda (SNDA) October 4, 2005 at $28.10.
I've written about Shanda at some length before, but it's been a while. My first purchase was near $32, so I've seen some highs and lows and also have a small position in Jan 2006 call options that will need a big boost to become a moneymaker for me.
At this point, I'm having a hard time understanding why Shanda has fallen so far ...
sure, they are in a very volatile industry in a very volatile and less-than-transparent economy, but still, we should not be able to buy this kind of growth and potential at these prices.
And, for me personally, this is a step away from a sector I was focusing too much on -- I've been in danger of falling into a biotech glut in my portfolio as that's where most of my recent purchases have been -- you can see that many of the recent posts have focused on that area, not least because it's performing like gangbusters right now.
Shanda, for those who haven't heard of them or read the full writeup, is a Chinese entertainment company that is the leader (still, though barely) in online gaming in China. Online gaming in China, including both interactive multiplayer games and casual games, is a huge business for a lot of reasons -- it's cheap, there are very few entertainment options in the extremely congested Chinese cities but internet cafes are inexpensive and readily available, and there are a lot of young people in China without siblings or work or other social outlets.
Shanda has been a leader in this industry since it began a few years back, both in-licensing foreign games and developing their own popular platforms, and while they are not the hot item in gaming right now (that title belongs to Netease after their surprisingly great year so far, or to the import game World of Warcraft hosted by NCTY) , they are still a dominant player in the industry.
So why buy now, when pessimism reigns? Well, that in itself can sometimes be a good reason,
but there are other solid reasons to buy as well.
First of all, the recent pessimism and the rush of hot money to NTES and other companies means that Shanda no longer must be bought at a premium because it's a hot name. Their forward PE right now is very close to the market average and their PEG remains well below 1, which should be shocking for a company that is growing at this rate and has a good position in an exploding market.
Second, analysts are poormouthing SNDA for the near term because there have been some delays with their upcoming new games and there is some uncertainty about the eventual success of Shanda's move to become a home-based portal of entertainment and move beyond just gaming. The short term estimates that Shanda will grow at "ONLY" 20% or so for the next year are scaring some folks off, but I think those estimates are very low and, whether they're right or not, hide the fact that there is some huge potential for future growth beyond the next quarter or two once their new games (especially Ragnarok and Dungeons and Dragons) and their home console are released. And that's not even considering the fact that they already have a huge addicted base of players of their existing games, which remain popular even if they're not at the top of the charts, and the margins delivered by the continuing performance of those games are remarkable -- Shanda's game players pre-pay, and each game, even those that aren't as popular, is quite "sticky" once a player has invested time into advancing and developing his characters.
Of course, Shanda's plans might not work -- but SNDA is already priced as if they're going to stagnate for a while, whereas Netease, which I also like, is priced as though its recent success with new games is going to continue and spur dramatic growth. I'm still holding Netease, but Shanda looks like a less risky bet for new money right now. Even if I'm wrong on the execution and SNDA continues to slip in the short term, the growth in the sector and in China in general is going to lift all boats, even the ones the analysts don't like as much.
Just bought more Shanda Interactive Entertainment today, this stock fell out of it's nice little year-long trading range of $32-40 at the end of the summer and is now languishing at what appear to me to be true bargain levels.
Bought Shanda (SNDA) October 4, 2005 at $28.10.
I've written about Shanda at some length before, but it's been a while. My first purchase was near $32, so I've seen some highs and lows and also have a small position in Jan 2006 call options that will need a big boost to become a moneymaker for me.
At this point, I'm having a hard time understanding why Shanda has fallen so far ...
sure, they are in a very volatile industry in a very volatile and less-than-transparent economy, but still, we should not be able to buy this kind of growth and potential at these prices.
And, for me personally, this is a step away from a sector I was focusing too much on -- I've been in danger of falling into a biotech glut in my portfolio as that's where most of my recent purchases have been -- you can see that many of the recent posts have focused on that area, not least because it's performing like gangbusters right now.
Shanda, for those who haven't heard of them or read the full writeup, is a Chinese entertainment company that is the leader (still, though barely) in online gaming in China. Online gaming in China, including both interactive multiplayer games and casual games, is a huge business for a lot of reasons -- it's cheap, there are very few entertainment options in the extremely congested Chinese cities but internet cafes are inexpensive and readily available, and there are a lot of young people in China without siblings or work or other social outlets.
Shanda has been a leader in this industry since it began a few years back, both in-licensing foreign games and developing their own popular platforms, and while they are not the hot item in gaming right now (that title belongs to Netease after their surprisingly great year so far, or to the import game World of Warcraft hosted by NCTY) , they are still a dominant player in the industry.
So why buy now, when pessimism reigns? Well, that in itself can sometimes be a good reason,
but there are other solid reasons to buy as well.
First of all, the recent pessimism and the rush of hot money to NTES and other companies means that Shanda no longer must be bought at a premium because it's a hot name. Their forward PE right now is very close to the market average and their PEG remains well below 1, which should be shocking for a company that is growing at this rate and has a good position in an exploding market.
Second, analysts are poormouthing SNDA for the near term because there have been some delays with their upcoming new games and there is some uncertainty about the eventual success of Shanda's move to become a home-based portal of entertainment and move beyond just gaming. The short term estimates that Shanda will grow at "ONLY" 20% or so for the next year are scaring some folks off, but I think those estimates are very low and, whether they're right or not, hide the fact that there is some huge potential for future growth beyond the next quarter or two once their new games (especially Ragnarok and Dungeons and Dragons) and their home console are released. And that's not even considering the fact that they already have a huge addicted base of players of their existing games, which remain popular even if they're not at the top of the charts, and the margins delivered by the continuing performance of those games are remarkable -- Shanda's game players pre-pay, and each game, even those that aren't as popular, is quite "sticky" once a player has invested time into advancing and developing his characters.
Of course, Shanda's plans might not work -- but SNDA is already priced as if they're going to stagnate for a while, whereas Netease, which I also like, is priced as though its recent success with new games is going to continue and spur dramatic growth. I'm still holding Netease, but Shanda looks like a less risky bet for new money right now. Even if I'm wrong on the execution and SNDA continues to slip in the short term, the growth in the sector and in China in general is going to lift all boats, even the ones the analysts don't like as much.
This article posted by One Guy @ 10/05/2005 11:26:00 AM 0 comments
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